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.