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Writer's pictureRicky Gandhi

How to get a mortgage with a small deposit in the UK

Updated: Aug 16


Table of Contents

  • Introduction

  • What is a small deposit mortgage?

  • Why are small deposit mortgages important?

  • How to get a mortgage with a small deposit

  • Government schemes for small deposit mortgages

  • Other ways to get a mortgage with a small deposit

  • Tips for getting approved for a mortgage with a small deposit

  • Conclusion

  • Additional information


Mortgage Small deposit

Introduction


Getting on the property ladder is a significant milestone for many people in the UK. However, one of the biggest hurdles to overcome is saving up for a deposit. With rising house prices and the cost of living increasing, it can be challenging to save a large sum of money. Fortunately, there are options available for those looking to get mortgage with a smaller deposit. In this comprehensive guide, we'll explore how to get mortgage with a small deposit in the UK, including various schemes and strategies to help you achieve your homeownership dreams.


What is a small deposit mortgage?


A small deposit mortgage, also known as a high loan-to-value (LTV) mortgage, is a type of home loan that allows buyers to purchase a property with a smaller down payment than traditionally required. Typically, a small deposit is considered to be less than 10% of the property's value. For example, if you're looking to get mortgage on a £200,000 home, a small deposit would be £20,000 or less.


Why are small deposit mortgages important?


Small deposit mortgages play a crucial role in helping first-time buyers and those with limited savings to get mortgage and enter the property market. They're particularly important because:


1. They make homeownership more accessible to a broader range of people.

2. They allow buyers to get mortgage and purchase a home sooner, rather than spending years saving for a larger deposit.

3. They provide an alternative for those who may struggle to save a large deposit due to high rental costs or other financial commitments.


How to get a mortgage with a small deposit


1. Improve your credit score

Before you apply to get mortgage, it's essential to ensure your credit score is in good shape. Lenders are more likely to offer favorable terms to borrowers with higher credit scores, even with a small deposit. To improve your credit score:


- Pay bills on time

- Reduce existing debt

- Check your credit report for errors and dispute any inaccuracies

- Register on the electoral roll

- Avoid applying for new credit in the months leading up to your mortgage application


2. Save as much as you can

While you're aiming for a small deposit mortgage, saving as much as possible can still improve your chances of getting approved and may result in better interest rates. Even an extra 1-2% can make a difference when you're trying to get mortgage approval.


3. Research lenders and mortgage products

Different lenders have varying criteria for small deposit mortgages. Some may specialize in helping first-time buyers get mortgage approval with smaller deposits. Research thoroughly and compare offers from multiple lenders to find the best deal for your situation.


4. Consider using a mortgage broker

A mortgage broker can help you navigate the complexities of getting a mortgage with a small deposit. They have access to a wide range of lenders and can often find deals that aren't publicly advertised, increasing your chances to get mortgage approval.


Government schemes for small deposit mortgages


The UK government has introduced several schemes to help people get mortgage with smaller deposits:


1. Help to Buy: Equity Loan

This scheme allows first-time buyers and home movers to get mortgage and purchase a new-build home with just a 5% deposit. The government provides an equity loan of up to 20% (40% in London) of the property's value, interest-free for the first five years.


2. Shared Ownership

With Shared Ownership, you can buy a share of a property (between 25% and 75%) and pay rent on the remaining share. This can make it easier to get mortgage approval as you need a smaller deposit and mortgage for your share of the property.


3. First Homes scheme

This new initiative offers newly built homes to first-time buyers at a discount of at least 30% compared to the market price. This discount remains with the property when it's sold, helping more first-time buyers get mortgage and enter the property market in the future.


4. Mortgage Guarantee Scheme

Introduced in 2021, this scheme encourages lenders to offer 95% LTV mortgages by providing a government guarantee on a portion of the loan. This makes it easier for buyers to get mortgage with just a 5% deposit.


Other ways to get a mortgage with a small deposit


1. Family assist mortgages

Some lenders offer mortgages where family members can help you get mortgage approval by providing additional security, such as savings or equity in their own property.


2. Joint mortgages

Applying for a mortgage with a partner, friend, or family member can increase your chances of getting approved and may allow you to afford a higher-value property.


3. Rent to Buy schemes

These schemes allow you to rent a property for a set period with the option to buy it later, giving you time to save for a deposit while living in the home.


4. 100% mortgages

While rare, some lenders offer 100% mortgages with no deposit required. However, these often come with stricter criteria and higher interest rates.


Tips for getting approved for a mortgage with a small deposit


1. Demonstrate a stable income

Lenders want to see that you have a reliable source of income to make your mortgage payments. If you're self-employed, you may need to provide additional documentation to prove your income stability.


2. Reduce existing debts

Pay down credit card balances and personal loans as much as possible before applying to get mortgage. This will improve your debt-to-income ratio, making you a more attractive borrower.


3. Be realistic about your budget

When looking to get mortgage, consider not just the monthly payments but also additional costs like insurance, maintenance, and property taxes. Lenders will assess your affordability based on these factors as well.


4. Provide proof of regular savings

Even if you're applying for a small deposit mortgage, showing a history of consistent savings can strengthen your application and help you get mortgage approval.


5. Consider a longer mortgage term

Opting for a longer mortgage term (e.g., 30 or 35 years) can reduce your monthly payments, making it easier to get mortgage approval. However, keep in mind that you'll pay more interest over the life of the loan.


6. Be prepared with documentation

Have all necessary documents ready when you apply to get mortgage, including:

- Proof of income (payslips, tax returns)

- Bank statements

- Proof of deposit

- ID and address verification


7. Choose the right property

Some lenders may be more hesitant to offer small deposit mortgages on certain property types, such as flats above commercial premises or properties in need of significant renovation.


8. Consider new-build properties

Many government schemes and lender incentives are geared towards new-build properties, which may make it easier to get mortgage with a small deposit.


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Government mortgage schemes


Other ways to get a mortgage with a small deposit

There are a number of other ways to get a mortgage with a small deposit, including:

  • Gifted deposit. If a close friend or family member is willing to give you money for a deposit, this can be a great way to get onto the property ladder.

  • Guarantor. If you have a friend or family member with a good credit history, they may be willing to act as a guarantor for your mortgage. This means that they will be responsible for your mortgage repayments if you default on the loan.

  • Shared ownership. Shared ownership is a scheme that allows you to buy a share of a property, typically between 25% and 75%. You can then rent the remaining share from a housing association.

Tips for getting approved for a mortgage with a small deposit

Here are a few tips for getting approved for a mortgage with a small deposit:

  • Be prepared to shop around. Compare mortgage deals from different lenders to get the best interest rate and terms.

  • Be honest with your lender. Tell your lender about your financial situation and be honest about your budget.

  • Be prepared to compromise. You may need to compromise on the type of property you buy or the location of the property in order to get a mortgage with a small deposit.

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Conclusion

While it may seem challenging to get mortgage with a small deposit in the UK, there are numers options available to help you achieve your homeownership goals. By taking advantage of government schemes, improving your financial profile, and exploring various mortgage products, you can increase your chances of getting approved for a mortgage with a smaller down payment.


Remember that getting a mortgage with a small deposit often comes with higher interest rates and monthly payments. It's crucial to carefully consider your long-term financial situation and ensure you can comfortably afford the repayments before committing to a mortgage.


With persistence, careful planning, and the right approach, you can successfully get mortgage approval and take your first step onto the property ladder, even with a small deposit.


Additional information


When looking to get mortgage with a small deposit, it's essential to stay informed about the current market conditions and any changes to government schemes or lending criteria. Here are some additional points to consider:


1. Mortgage insurance

Some lenders may require you to pay for mortgage insurance when you get mortgage with a high LTV. This protects the lender in case you default on the loan but adds to your overall costs.


2. Interest rates

Small deposit mortgages typically come with higher interest rates. Be prepared to pay more in interest compared to those with larger deposits. However, you may be able to remortgage to a better deal after building up some equity in your home.


3. Overpayments

Once you get mortgage approval, consider making overpayments when possible to build equity faster and potentially access better rates in the future.


4. Professional advice

Consider seeking advice from a financial advisor or mortgage specialist who can provide personalized guidance on how to get mortgage with your specific circumstances.


5. Future market conditions

Keep in mind that property values can fluctuate. If you get mortgage with a small deposit and property prices fall, you could find yourself in negative equity.


6. Stamp duty considerations

First-time buyers in England and Northern Ireland don't pay stamp duty on properties up to £300,000, which can help offset the costs of getting a mortgage with a small deposit.


7. Regional variations

The availability and terms of small deposit mortgages may vary depending on your location in the UK. Some areas may have specific local schemes or incentives to help buyers get mortgage approval.


8. Saving while renting

If you're currently renting, look for ways to reduce your rental costs or increase your income to boost your savings. This can help you get mortgage ready faster.


9. Alternative property types

Consider less traditional property types, such as shared ownership or property auctions, which may offer opportunities to get mortgage with a smaller deposit.


10. Timing your application

The mortgage market can be influenced by economic conditions. Stay informed about market trends and consider timing your application when conditions are favorable for small deposit mortgages.


By considering these additional factors and staying informed about the latest developments in the mortgage market, you'll be better equipped to navigate the process of getting a mortgage with a small deposit in the UK. Remember, persistence and thorough preparation are key to achieving your goal of homeownership, even with limited savings for a deposit.


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