It can be difficult to save up enough for a decent mortgage deposit but there are ways to build a deposit for your first home without taking on more debt.
If you're keen to get as large a mortgage deposit as possible in order to buy your first house or flat, you might be thinking can I borrow money for a house deposit?
The answer is that borrowing money, getting a loan or using a credit card towards a mortgage deposit is quite a risky option. We explain why a loan for a house deposit is not the best option and suggest alternative ways to help you save up for a mortgage deposit.
If you're a first time buyer and keen to get on the property ladder, then you will need a sizeable chunk of cash for your mortgage deposit.
Generally, you need a mortgage deposit of around 10% to 20% of the house's value, sometimes more, depending on your income and credit score. The very best deals with the lowest interest rates tend to go to people who can provide a 25% deposit.
This is known as a 75% loan to value mortgage, or LTV.
So, for example, if the house you wanted to buy was valued at £250,000, then most likely, you will need somewhere between £25,000 and £50,000 to put down as a deposit. This is a lot for a first time buyer to save up.
In some cases, you may only need 5%, so for the above example, you could still get a mortgage with just £12,500. But again, this depends on your income and credit rating. Mortgage providers will only lend to those they're confident can keep up with the monthly repayments.
Your credit rating is a history of all your borrowing and repayments:
if you have always paid your bills on time
have a record of using credit sensibly
not maxing out your credit card
you're on the electoral register
These factors all mean you have a better chance of having a good credit rating.
If you have a mortgage deposit of 40% or more, then you would have access to the widest range and best mortgage deals. If you are looking for a loan for a house deposit, you are probably going to be after just enough cash for a 5% deposit.
Most people have to save for several years in order to get a house deposit, but sometimes they have help from family as well who can provide extra funds. It's better for the success of your mortgage application if this comes in the form of a gift, rather than a loan.
When you apply for a mortgage you will be asked for proof of your income. On top of this, the mortgage provider will assess your financial capability.
They do this by doing a credit check on your financial history and looking over your monthly outgoings, bills and any outstanding debts you have.
Before you apply for any credit, you should evaluate your financial history and check your credit report.
If you have missed any payments in the past or you're not yet registered on the electoral roll at your address, then you're likely to have a hard time getting approved for a mortgage, or any other type of credit.
Lenders will examine your credit history and will want to see your recent bank statements as well to check that you are not living above your means and that you can demonstrate you are financially responsible. Considering how much checking is involved in getting a mortgage, you need to be as prepared as possible before you even think about possibly taking a loan for a mortgage deposit.
That means making sure you are on the electoral register, being careful with your money and making sure that your outgoings do not exceed your income and that you are able to show you have surplus income at the end of every month.
Any loans you are currently paying off, especially any you have for a mortgage deposit, will be looked at by your potential mortgage provider when assessing your suitability. They will view it as an outstanding debt that you will be paying off alongside the mortgage they will be allowing you to borrow.
This means, that it's unlikely you will be offered a mortgage if you decide to get a loan for your mortgage deposit.
Even if you choose to get a loan just to cover a small portion of your mortgage deposit, you are significantly reducing your chances of being approved for a mortgage.
With extra financial capability checks being taken by mortgage lenders, it's strongly recommended that you apply for a mortgage with as little outstanding personal debt as possible.
If you're struggling to build up a sufficient deposit, and house prices seem out of your reach, it can be tempting to ask can you get a loan for a house deposit?
Unfortunately, taking on more borrowing in order to qualify for a mortgage isn't the answer. Rather, you should try to have as little debt as possible.
If a lender finds out that some or most of your mortgage deposit is actually a personal loan that you have to repay, they're unlikely to approve your mortgage application. That's because there is a chance your will not be able to keep up the loan repayments. This is because borrowing money for a house deposit actually means that your mortgage will be nearer 100% LTV – something lenders would be concerned about.
In fact, borrowing using a personal loan in order to bolster a mortgage deposit is likely to be a deciding factor in your mortgage application being turned down. You may have to declare where your deposit funds have come from, and a loan will be considered a risky prospect.
When saving for a deposit for a house, there are a few alternatives to taking out a loan or credit for a mortgage deposit, which could make it easier to raise the cash to buy a house.
Gifts from family
If you're fortunate enough to have parents willing to lend you cash towards a mortgage deposit, you could ask them to 'gift' it to you.
Mortgage lenders generally don't like mortgage deposit loans, so they are more likely to accept your application if the money was given to you as a gift, with no obligation to pay it back.
Of course, should you manage to get the mortgage and start bringing in enough money to pay back the gift, then there would not be anything stopping you from doing so.
Alternatively, you could put together savings for a 5% deposit and get help to buy using a government house buying scheme. The two most popular options are Shared Ownership (also known as Part-Buy) and Help to Buy.
With Shared Ownership, you buy a portion of the property, so you wouldn't need a mortgage to cover the full value of the home. You would only need a mortgage to cover the share of the property you're buying.
For example, if you're buying a 30% share in a home valued at £300,000, you would be paying £90,000. This means you could put up a 5% deposit of £4,500 and get a mortgage to cover the remaining share.
The remaining 70% would still be under ownership of the local housing association, but you would be given the option to increase your share in future. Your mortgage repayments would be much lower, but you would still have to pay rent on the share of the house you do not own.
Help to Buy is a mortgage guarantee scheme, which essentially provides a safety net to banks and new homeowners when taking on a 90% or 95% mortgage.
While many banks would have been put off from lending a 95% mortgage to first time buyers, with Help to Buy, they have a guarantee in place, making it easier to be approved for a mortgage.
Before you consider taking out a loan for a mortgage deposit, explore all of your options, as it's still unlikely that you will get approved for a mortgage with a lot of outstanding debt.
This includes trying to reduce any debt you have on a credit card, and making sure you do not borrow up to your credit limit on any of your cards.