If you require a mortgage to buy a home, it’s likely that you’ll need to put down a deposit. A deposit is a lump sum of money that you pay upfront, allowing you to own part of the property outright; while the rest of the agreed sale price can be paid by a mortgage. A deposit reassures the seller that you’re serious about purchasing the property.
To give you further insight, we’ve asked our friends at SRC Mortgage Solutions to provide an overview of some key things to consider with regard to deposits for Shared Ownership purchases.
What is the minimum deposit needed when buying through Shared Ownership?
Most lenders require you to pay a deposit towards the purchase of your property. This can be from as little as 5-10%, but in most cases the more you can put down the better. A bigger deposit means more lender choice and better mortgage deals, which can result in cheaper monthly repayments.
If you’re buying a shared ownership property, you will most likely need a deposit for your mortgage. The good news is that the amount will be based on the value of the share you are purchasing, as opposed to the full value of the house. This means that you will need a smaller deposit than if you were buying your home outright. *For example, the deposit required for someone buying a 50% share of a property valued at £300,000 would be calculated as follows:
Property Value - £300,000
Share Purchased (50%) - £150,000
Deposit (10%) = £15,000 (£150,000 x 10%)
Some lenders will require a larger deposit on ‘new build’ properties, with many asking for a minimum of 15% on a ‘new build’ flat.
*We advise you to speak to your mortgage advisor to understand what deposit amount is required from specific lenders.
How to prove the source of deposit?
You will need to evidence your deposit to the mortgage lender by providing a statement showing the source. Where money has been built up in your current account, three months bank statements should be sufficient. However, where money has been transferred to your bank account from a separate source e.g. an investment, you will need to provide evidence of the original source.
It is now very common for buyers to receive gifts from family to help with their home purchase. Most lenders will accept gifts, but will insist on the source being verified. Some sponsors may be uncomfortable with disclosing their personal and financial information, so it’s important that you discuss this with them in advance.
Sponsors will be required to:
• Sign a letter stating that the gift is unconditional, not repayable and does not entitle them to any interest in the property.
• Proof of ID e.g. certified copy passport or driving licence (photo version)
• Proof of address e.g. certified copy of a utility bill/bank statement
• Evidence the source e.g. 3 three months bank statements (or certified copies)
Please note that gifts from overseas may be subject to a higher level of scrutiny and in some situations may not be accepted – but please speak to your mortgage advisor who can advise on an individual case basis.
When are deposits payable?
Deposits are normally payable on exchange of contracts, so it’s essential to have the money readily available. With some new build homes, you are required to exchange contracts within 28 days of agreeing to purchase. Therefore, if your deposit is coming from the sale of an investment or a family gift, you will need to act quickly to ensure there are no delays.
Your solicitor will contact you to request the deposit in readiness for exchange of contracts. The sum required on exchange is normally 10%, although this may be lower if the deposit you are paying is lower, e.g. 5%.
Remember, once contracts have been exchanged you are committed to buying and your deposit is not normally refundable.
How to save for a deposit?
The deposit is by far the biggest thing you'll be saving towards when purchasing a home. That's why it is helpful to make a clear and realistic plan in place to save up the amount of money you need. The first step is to work out how much you need to save each month. You can then explore all the savings options available to you by speaking to a mortgage advisor. Their help can be invaluable in helping you reach your home buying goals.
Looking for a Shared Ownership home?
Peabody are one of the largest housing associations in the UK, with a selection of Shared Ownership homes available throughout London and the South East. Have a look at our property search to find the perfect home for you.Find a Home