Understanding deposit requirements and financial literacy as a buyer
Getting your finances in order before buying a home
Buying a home is a huge financial commitment, and understanding how much money you need upfront, and how to manage your finances effectively, will put you in a stronger position. From deposit requirements to mortgage affordability, this guide will help you get financially prepared for homeownership.
How much deposit do you need?
Your deposit is one of the biggest upfront costs when buying a home. The amount you need depends on:
• Lender requirements – Most mortgage lenders require at least a 5% deposit of the property’s purchase price.
• Better mortgage deals – A larger deposit (10-25%) can give you access to better interest rates, reducing your monthly repayments.
• Government schemes – Help to Buy, Shared Ownership, and Deposit Unlock schemes can lower the amount you need upfront.
• First-time buyer benefits – Some lenders offer lower deposit requirements or cash back incentives for first-time buyers.
💡 Example: If you’re buying a £250,000 property:
• A 5% deposit (£12,500) means you’ll need a 95% mortgage.
• A 10% deposit (£25,000) gives you a better interest rate and lower repayments.
• A 20% deposit (£50,000) reduces the risk for lenders and can unlock even better deals.
Additional costs to budget for
Your deposit isn’t the only upfront cost. Be prepared for:
• Stamp duty – First-time buyers pay no stamp duty on the first £425,000 of a property worth up to £625,000. Otherwise, standard rates apply. In Wales, this changes to Land Transaction Tax (https://www.gov.wales/land-transaction-tax-calculator)
• Mortgage fees – Some lenders charge arrangement fees, which can be £1,000 or more.
• Conveyancing costs – Legal fees for a solicitor or conveyancer typically range from £800 to £2,000 dependant on purchase price. Beware of much cheaper conveyancers who might not provide you the value you deserve.
• Surveys and valuations – A basic mortgage valuation is often free, but a full survey can cost between £400 and £1,500.
• Moving costs – Hiring a removals company or van rental can cost anywhere from £200 to £1,500, depending on the move’s size and distance.
💡 Tip: Have at least an extra £5,000 to £10,000 set aside for unexpected costs. This is non essential, but certainly helps.
Understanding mortgage affordability
Lenders assess how much they’ll lend based on:
• Income and employment status – Most lenders offer 4 to 4.5 times your annual salary.
• Credit history – A strong credit score increases your chances of approval and better interest rates.
• Monthly outgoings – Lenders check your debt-to-income ratio, so reduce any outstanding loans or credit card balances before applying.
• Stress testing – Lenders assess whether you could still afford repayments if interest rates rise.
💡 Example: If you earn £40,000 per year, you might be able to borrow around £160,000 to £180,000, depending on lender criteria.
How to improve your mortgage eligibility
If you’re struggling to get approved for a mortgage, consider:
✔ Boosting your credit score – Pay bills on time, clear debts, and avoid applying for new credit before a mortgage application.
✔ Saving a bigger deposit – A higher deposit reduces risk for lenders and improves mortgage rates.
✔ Reducing debt – Lower credit card balances and personal loans improve your affordability.
✔ Using a mortgage broker – A broker can find the best mortgage for your situation, including deals not available directly from banks.
What Open Moove suggests next
• Check your credit score and take steps to improve it before applying for a mortgage.
• Use a mortgage calculator to estimate how much you can borrow and what your repayments might be.
• Always speak to a mortgage broker for expert advice and access to better deals.
• Download the Open Moove app to track your home buying journey and get expert guidance at every step.
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