Your Guide to Low Deposit Mortgages

What is a Low Deposit Mortgage?

A low deposit mortgage, also known as a high loan-to-value (LTV) mortgage, allows you to buy a home with a deposit of 5% or less. This means the gap between the value of your property and the amount you borrow is quite small at the start of your mortgage term.

Benefits of a Low Deposit Mortgage

Get on the Property Ladder Sooner: Saving for a large deposit can take time. With a low deposit mortgage, you can buy your first home faster.
Smaller Deposit Needed: You don’t need to save a big deposit, making homeownership more accessible.

Risks of a Low Deposit Mortgage

While low deposit mortgages can help you buy a home sooner, they come with certain risks:

Negative Equity: This occurs when you owe more on your mortgage than your home is worth. For example, if you buy a house for £220,000, have £210,000 left to pay, and the property’s value falls to £200,000, you would be in negative equity.
Market Fluctuations: Changes in the property market can affect your home’s value, which could go down as well as up.
Limited Access to Deals: At the end of your fixed deal, you might not have access to the best mortgage deals if you’re in negative equity.

Interest Rates on Low Deposit Mortgages

Interest rates on low deposit mortgages are typically higher. The larger the deposit you save, the lower your interest rate is likely to be, as you’ll have a lower loan-to-value ratio.

Tips to Mitigate Risks

Make Overpayments: Reduce how much you owe by making overpayments on your mortgage. Check your mortgage deal to see what you can overpay without incurring early repayment charges.
Improve Your Property: Enhancing your home’s value through improvements can help but be mindful of the costs versus the added value.
Monitor Property Prices: Keep an eye on property price trends in your desired area to make informed decisions.

By understanding the benefits and risks, you can make a more informed decision about whether a low deposit mortgage is right for you.