But here are five reasons why it’s not yet time to give up on your dream.
1. You can get a mortgage with a 5% deposit
Ask anyone how much you’ll need to save for a deposit on a house and they’ll probably tell you it’s about 10% of the property’s value.
But the truth is, there are loads of mortgages that only require a 5% deposit – 160 deals, in fact, currently on the market. And you can read more about the best ones in Jessica Bown’s article.
Because 95% mortgages only require a small down payment, the rate they charge is, naturally, more expensive. The average rate, according to our in-house data, is 4.76% which compares to less than 2% if your deposit is much bigger.
This is what your 95% mortgage costs could look like:
- Mortgage rate: 4.76%
- Buy a home at the average price of £208,000 (excluding London and the south east)
- Borrow £197,600 (95%) over 25 years on a repayment basis
- Your monthly payments would be £1,127.69
This looks better than last year. The average number of 95% mortgage deals on the market in 2014 was lower at 156, while the average rate, at 5.24%, was higher.
2. The government will now help you to save a deposit
Announced in the 2015 Budget (and explained in greater detail here) the new Help to Buy ISA, which will launch this autumn, is designed to help first-time buyers build up a deposit.
now is probably the best time in history to look for a mortgage in terms of cost…
For every £200 that you save into the ISA a month (that’s the maximum monthly amount) the government will pay you £50. This is after an initial opening deposit of up to £1,000 on which the government will pay £250. The maximum government contribution is £3,000 which you’ll get if you paid in £12,000.
But, as this allowance is allocated per person, not per property, if you were buying with someone else you can double it.
So – even if you can’t afford to whack down the initial £1,000 deposit, in 12 months you could save £4,800 between you, earning a contribution of £1,200 from the government.
In total, that’s a 5% deposit on a house worth £120,000.
3. Rock bottom interest rates will help you
Mortgage lenders set their interest rates according to their expectations for the Bank of England (BoE) base rate, which has been at 0.5% for over six years.
Recently, the BoE has suggested the base rate will remain low, so lenders’ mortgage prices have gone down – across deals on all deposit levels, including 95% mortgages as we demonstrated above.
Lenders are also competing against each other for your business, which is a further factor in driving prices downwards.
Low interest rates won’t last indefinitely though, and now is probably the best time in history to look for a mortgage in terms of cost.
4. It’s the best time of year to buy
MoneySuperMarket data shows that the end of May is the most popular time for moving home – which means properties are flooding onto the market for sale about now.
Buyers can use this annual boost to property supply to their advantage by negotiating a better deal. And your position is even stronger if you are a first-time buyer –with nothing to sell you can be quick on your feet which those looking to move up the ladder once more, will love.
5. New Stamp Duty rules are on your side
Stamp Duty, a tax you pay when you buy a house, was changed late last year. And for 98% of homebuyers, the changes meant paying less tax.
Kevin Pratt explains the changes in greater detail here but essentially, whatever the price of the house you’re buying, you won’t pay any stamp duty on the first £125,000 of its value.
You’ll then be taxed 2% on any value between £125,001 and £250,000 and then 5% on anything between £250,001 and £925,000.
Please note: any rates or deals mentioned in this article were available at the time of writing. Click on a highlighted product and apply direct.