With house prices higher than ever before — and beyond the means of many — the deposit needed to buy your own home is significant. If you shop around, however, there’s a good chance you’ll find a decent mortgage that requires just a 5% deposit.
If you’re short of cash, there are ways to reduce the deposit required even further. If you need to know how to buy a house with a small deposit, read on.
Choose a guarantor mortgage
Mortgage providers are often willing to accept a greatly reduced deposit for a mortgage guaranteed by a parent or close relative. In the event you fall behind with your repayments, the lender can pursue the guarantor for the arrears.
This is a good idea if your parents have collateral, a good credit score and the means to pay your mortgage should something go wrong. But you need to trust the person. And your relationship should be strong enough to withstand the fallout caused by falling into arrears.
Buy your house at auction
Buying a house the traditional way usually means you end up paying the market price (or something close to it). And because market prices are higher than ever, even a 5% deposit is well beyond the reach of people on a modest income.
But buying a house at auction allows you to avoid some of the legal and administrative costs involved. And don’t forget: there are some great bargains to be found at property auctions — the lower the final sale price, the lower the deposit.
Shared ownership is one answer to soaring house prices in the UK. It allows people to get on the property ladder when they don’t have the income or deposit to get a mortgage on their own.
In most cases, ownership is shared between the buyer and either the developer or a local authority. You pay your mortgage as normal, but you also pay rent on the proportion of the property you don’t own.
Buying a property this way gives you anything between 25% and 75% ownership. If you’re only buying, say, 50% of the property, you only have to find 50% of the deposit.
A bridging loan
If you’re about to buy a property, the chances are you have a limited pot of cash to cover all your initial expenses and outgoings. A bridging loan doesn’t lower the deposit you need to pay, but it does help you to cover buying expenses for a limited period.
For example, imagine you’re trying to sell a property and buy a new one at the same time. To help you cover all the associated costs — and pay a deposit — you take out a small bridging loan. Once your house sells, you pay the loan back in full.
But a word of caution, bridging loans can be expensive. They should only ever be taken out for a few weeks or months. Once you’ve sold your home, use some of the proceeds to repay the loan immediately. Doing so helps you to pay a hefty deposit while keeping money back for fees and expenses.
Selling a house fast is often essential if you need to raise a significant deposit for a new property. Sell Property Fast Cash can help in that regard. We buy houses directly from owners — without the need to market your home or waste time on price negotiations. As a result, we might be able to complete the purchase of your home within just a few days.