What do I need a deposit for?

Beautiful home to potentially raise a deposit for

Deposits can consist of savings, starting off as a small investment (savings accounts, or small shares). They can also be in the form of a lovely monetary gift. A deposit can lead to a big stream of income or return on in investment. For example, a deposit for property you own or for a ‘Buy to Let Property’ or home in the future, once you’ve heavily invested i.e. property and shares.

All of the above takes time, and of course patience which are essential to start saving for all these things and more!

Buying a Home

It is always a great idea to put as much money down as you possibly can. When purchasing my first property I was 26 at the time, and I didn’t realise how having a big deposit can save you in the long run. When taking a product out on finance, it is always useful to have the intention to pay it off (pretty soon). A big deposit will essentially cut down the cost in the long run - (in particular at a time when interest rates are low) and any other fees that may occur.

For those partaking in Shared Ownership or Help to Buy, they would need to buy into more of your home, an initial big deposit will help to access better rates. Furthermore, if you are buying the old-school way, your mortgage payments will be lower depending on the size of your deposit.

When buying a property for instance with help to buy/shared ownership, they say you need a minimum deposit of say £5k? It sounds like a relief having to put down a lower deposit but this could affect you in the long run. Deposits have appeared to have been lowered as of Jan 2023.

Access to better interest rates

Having a higher deposit means you have access to better mortgage rates, a LTV (Loan to Value). A ‘loan to value’ is the percentage or amount of borrowing you have when taking out a mortgage for your home. Basically, the higher the deposit, the lower your LTV – meaning you have less to owe the bank and more for yourself!

* Summer 2023, interest rates are at 6% so this may not be altered during the current financial climate but have decreased since July 2024

Product Fees

This will save you numerous fees in the long run. If you have spare cash you can use that to cover your fees or you can add them to the mortgage, essentially paying over time.

Valuation Fees

The property will need to be valued bu someone registered with RICS (Royal Charter of Surveyors). This is essential to find the value of your new home. Your bank may also ask one of their own surveyors to carry this out too.

Broker Fees

A mortgage broker can be used to find you a good mortgage rate however, this is something you can do yourself if you are well-versed in this area. Mortgage brokers are often affiliated with the housing association you are buying through, so may offer a small discount if you go through them. Alternatively, you can go online and search for one.

Solicitor Fees

It is important to save more than you need, in case you need to take out cover with solicitors. For example, if you decide you want to terminate the matter before its completion - there may be a fee you can pay in advance which guarantees your money back. Solicitor fees will usually be between £1,500- £2K.

Stamp Duty

Depending on the value of the property, you may have to pay Stamp Duty. It’s ideal to set aside at least £1k but this will depend. As a first time buyer, you will not need to pay Stamp Duty on your property*, if it is under £250k for residential properties or £425k for first time buyers

*As of current September 2023

Upfront Costs – Mortgage, rent/service charge

Please keep in mind that after you’ve paid your deposit, you’d need to keep money for any upfront costs, which are usually broken down in the completion statement.

This statement is used to summarise everything you’ve paid to the solicitor and still need to pay. This could be the first month’s rent and service charge, depending on your scheme.

Your bank will ask for an advance payment, this usually covers a month with interest calculated. For example, if your monthly mortgage payments are set to be £500 p/m, this would be £500 + interest calculated for the first upfront payment.

Postage

Solicitors often require hard copies (of a copy). Examples of this could be copies of ID and forms to sign. These will need to sent in the post (next Day Delivery/Special Delivery).

This can range between £6.85-£8.00.

Judith