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Buying a house with a 5% deposit

Discussion in 'Home and Garden' started by MG42Maniac, 6 Mar 2018.

  1. MG42Maniac

    Wise Guy

    Joined: 28 Jan 2005

    Posts: 1,671

    Location: Lymington

    Hi All,

    My partner and I are looking to buy our first house together. We are kinda left with Halifax because of the following reasons:
    1. Halifax will accept less than three years of self-employment
    2. Halifax take a 5% deposit
    3. Halifax is also "less strict on credit score and will accept a fair score from Experian" - words of the Mortage advisor we saw
    Point #1 is what is narrowing us down to Halifax, we bank with them so I have no problem getting a mortgage with them.

    The house we are eyeing up is £350K, we would look to put down a ~5% deposit of £18K so the loan would be £332K. Using their online calculators, the max they will lend is £370K. We would be a little way off maxing out our budget.

    My credit score with Experian is 740 (fair) and my partners is 902 (good). I have one default of £400 with an Argos card that was satisfied a year ago. From talking to our Mortgage Advisor she was saying that the Agreement in Principle would dictate the amount Halifax would lend us and the required deposit. Obviously, if they need more than 5% this kinda screws us, has anyone got much experience of applying for 95% LTV mortgages and success stories? I naively assumed that 5% deposits were easy enough to get. From looking online, they are tougher and require a better "credit profile" as the LTV goes up, which makes sense! Do they use a sliding scale? For example, If the amount is with 10% of max amount then require 10%, else 5%?

    We will be applying for an AIP after my partner has done her next tax return at the start of April so it's not long yet. I can see us both falling in love with this house and then Halifax coming along and wanting a 10% deposit which would kill off the chances of getting that house. So hence the reason for creating this thread, to see how many people have taken out 95% LTV mortgages and how difficult they were to get.

    Thanks in advance!
     
  2. Sui

    Mobster

    Joined: 24 Sep 2005

    Posts: 3,238

    Location: Brighton

    Doesn't really directly answer your question but, I was considering a 5% mortgage last year with my partner and decided it was a stupid decision (albeit your circumstances might not be the same).

    The interest rates are just absurd, if you have the ability save for another year and get the 10% deposit.
     
  3. MG42Maniac

    Wise Guy

    Joined: 28 Jan 2005

    Posts: 1,671

    Location: Lymington


    We are paying £1000 rent at the moment, mortgage repayments are £1500 with 5% and £1100 with 10%, so I agree with you. However, it gets us on the ladder and stops us wasting a £1000 a month on rent. After 2 years, we will remortgage with 10%, it's just the first 2 years that will suck.
     
  4. hornetstinger

    Soldato

    Joined: 6 Sep 2016

    Posts: 6,965

    With 5% deposit I'd aim at a much cheaper house, because you're going to pay a hell of a lot of interest over the years, and a long term too...unless you are both are incredibly well paid in which case have a short term mortgage. I bought house with 50% deposit so very short term, and incredibly affordable to boot.
     
  5. Beerbaron

    Soldato

    Joined: 28 Feb 2006

    Posts: 5,939

    Location: Beds

    Would it not make sense to get on the ladder with a cheaper property and then look to save to get a larger one?
     
  6. hornetstinger

    Soldato

    Joined: 6 Sep 2016

    Posts: 6,965


    yeah, get a 100K semi detached, get a much shorter mortgage, pay it off quickly then you have property to sell in a few years to help put towards a new house.

    I would not spend £350K on a house with just 5% deposit unless OP and his other half is on very good money, able to pay it off in full in 15 years or so.
     
  7. hornetstinger

    Soldato

    Joined: 6 Sep 2016

    Posts: 6,965

  8. Buffman

    Sgarrista

    Joined: 4 May 2007

    Posts: 7,672

    Location: Warwickshire

    I'd work out the increase in interest over the two years and wether that's worth it to you.

    Eg 5% rate with only 5% deposited vs 2% rate with 10% deposit.

    Could easily also compare to how much you spend on rent, and guesstimate a small % house cost rise.
     
  9. Sui

    Mobster

    Joined: 24 Sep 2005

    Posts: 3,238

    Location: Brighton

    That's fair enough, we've had the ability to stay with parents to enable us to save a lot, I feel for you renting whilst trying to get a sizeable deposit.

    Good luck!
     
  10. MG42Maniac

    Wise Guy

    Joined: 28 Jan 2005

    Posts: 1,671

    Location: Lymington

    I've done the following calculations:

    Stay where we are for 12 months and save up the extra 5%:
    £12000 spent on rent and houses will cost more in a year, probably £10K+ more. Looking at an extra £22k+

    Go for it now @ 5%:
    £400 extra on mortgage x 24 months is £9600. House has plenty of room and will last us years and years.

    Go for it now @ 10% for 300K:
    Cheaper mortgage but not getting the sort of house we want and when we upsize to a bigger house we will be stung big time for stamp duty as no first-time buyer discounts. This will happen in a few years as it will be a stepping stone house.

    The second option is still my preferred one as we really want to get out of rented asap. Because we are paying £1000 in rent, I still cannot help but feel going asap is the best solution even if we pay more for the mortgage as at least we are slowly building equity vs lining landlords pockets.
     
  11. Buffman

    Sgarrista

    Joined: 4 May 2007

    Posts: 7,672

    Location: Warwickshire

    Is stamp duty free on houses over 350k? Thought 300k was limit for FTB.

    To be honest I was similar and bought top end of my budget and don't regret it. Only thing to consider if self employed is the possibility of losing job?
     
  12. MG42Maniac

    Wise Guy

    Joined: 28 Jan 2005

    Posts: 1,671

    Location: Lymington

    £350K would be £2500 as a first-time buyer or £7500 if it's the second property. Also, we'd have costs associated with selling our house.
     
  13. i5aces

    Hitman

    Joined: 29 Jan 2012

    Posts: 678

    Location: Andover

    I have just completed on my house and my morgage lender is Halifax, for me they wanted a 15% deposit.
    There would be no harm in going for the AIP now to give you an indication, my morgage advisor sat down went through everything and Halifax came back with what they would lend and with what deposit.
     
  14. Glaucus

    Man of Honour

    Joined: 11 Mar 2004

    Posts: 76,645

    The interest rates are still good compared to historical.
    Extra 5% is 18k unlikely to save that in a year.
    You also have to account for house price rises, which can easily be another 5%

    95% mortgages are far from stupid.
    I've had no issues getting 95%morthagrs in principle, but that's only in principle.

    You could also give someone like London and country a phone and see what they come back with.
     
    Last edited: 6 Mar 2018
  15. Buffman

    Sgarrista

    Joined: 4 May 2007

    Posts: 7,672

    Location: Warwickshire

    Will Halifax actually take 5% deposit plus less than 3 years of books? (items 1+2 in OP)

    I know a mate that was a contractor and his provider wobbled around even though he had an inexpensive mortgage with a 50% deposit! (with circa 1 years books to be fair)
     
  16. matthab

    Mobster

    Joined: 19 Apr 2009

    Posts: 3,155

    When I was looking with my wife 5% mortgage was ridiculous unless it was a small amount. In the end we waited and manged to get over 10%, which is when the good rates came in.

    Could you downsize your rental place so you could put more in?
     
  17. Mr.E.

    Wise Guy

    Joined: 18 Oct 2002

    Posts: 1,402

    Location: middle of nowhere

    5% is nothing, I remember when it was 2 and 3 times that.

    If this is the house I'd go for it and bite the bullet for a couple of years.
     
  18. Glaucus

    Man of Honour

    Joined: 11 Mar 2004

    Posts: 76,645

    That's it, people get so stuck on interest rates and ignore the extra years of rent whilst saving and the extra house rise costs.
    What matters far more isaffordability can you afford the repayments and are you reasonably happy with them.
    Not get fixated on saving X amount if you had something you don't have, whilst ignore the extra costs.
     
  19. MG42Maniac

    Wise Guy

    Joined: 28 Jan 2005

    Posts: 1,671

    Location: Lymington

    Interesting, do you have any more details you'd be willing to share? Were you maxing out your budget? I am half expecting them to come back and want a bigger deposit.
     
  20. hornetstinger

    Soldato

    Joined: 6 Sep 2016

    Posts: 6,965

    2.69% for me 10 year fixed, or if I went with 5 year fixed 2.19%

    I think paying that difference is worth it because if interest rates go above fixed rate after 6 years, I'll be paying more interest. So I might pay £1000 more interest, but if I stick to 10% annual repayment, that'll bring it way down, and still have protection 10 year gives me