Costs - Deposit

Some lenders will lend you more than the purchase price. This is often used to pay off expensive credit or to improve the property. There is however a danger with this as you are automatically in negative equity and you should therefore consider this only where you can categorically commit to a property for a lengthy period of time.

Some lenders have the ability to accept 3% deposit. In theory this applies to both first time and second time buyers, but in practice few second time buyers who apply on this basis pass the credit assessment. The traditional deposit, which applies to the majority of lenders, is 5% of the purchase price. With house prices currently unstable the larger the deposit you can afford the better.

Where the borrowing is over 90% many lenders charge you a premium, which is added to your mortgage balance because the lending is 'riskier'. This has been known as an indemnity premium, mortgage guarantee premium, high risk fee. From 1st November 2004, this will be known as the Higher Lending Charge but sometimes it may be referred to by other terms. Particularly where the borrowing is 97% when the Higher Lending Charge is added on, the amount outstanding on the mortgage is very close to the value of the property.

Example	£
Purchase Price	80,000
Mortgage	76,000
Example Higher Lending Charge	1,280
TOTAL MORTGAGE	77,280

To avoid higher lending charges being paid by yourself, a 10% deposit is required by most lenders. There is still a charge being paid, but in this case the lenders pay it for you.

Many builders and sellers of property pay the deposit for you. This is known as a Vendor Pays Deposit. A considerable number of lenders accept this now, provided that it is disclosed to them at the outset. Many borrowers who perhaps have been in expensive rented accommodation or perhaps have had to split equity following a divorce, use vendor pays deposit schemes due to the lack of savings that they have and it is possible to negotiate one, even if it is not advertised on this basis. It is worth discussing this with a trained and experienced adviser.

 

 

 

 

 

 

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT
KEEP UP REPAYMENTS ON YOUR MORTGAGE.
THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME
View Terms of Business | Site Designed By Taylored Webs Direct