Buying your first home is likely to be the biggest purchase you’ll make in your lifetime, so it’s understandable for you to have some anxiety. Often it feels like stepping into the unknown and you’re likely to have a few worries and concerns. We want to put your mind at ease, so have listed a few key things you might be concerned about.
I’m a millennial - can I really afford a deposit for my first home?
Yes, you can. Despite what you may have heard, it is possible to get on the property ladder as a millennial. Check out our home buying tips for millennials to start with, and then read our recommendations on how to save money to buy a house. You’ll soon be well on your way to saving the deposit you need, and owning the home you deserve.
What does LTV mean?
Loan to value, or as it’s often referred to as, LTV, is the amount of mortgage you borrow versus the value of the property. You might be wondering, how do you work this out? All you need to do is take the value of the property, for example, £250,000, and if you have a deposit of £50,000 then you will need to borrow £200,000.
How to calculate your LTV
To calculate the LTV, you divide the amount you need to borrow, £200,000 by the value of the property, £250,000 which gives you 0.8.
£200,000 ÷ £250,000
Times this by 100 and you get 80%.
0.8 x 100
= 80% LTV
So if you buy a property for £250,000 with a £50,000 deposit, borrowing £200,000, your LTV is 80%.
Why does LTV matter?
When it comes to finding the right mortgage for you, the lower your LTV, the more options will be available to you at the best rates as you’re considered by the lender to be a ‘low risk’ borrower.
Can I get a loan for my deposit?
Unfortunately not, as this is frowned upon by lenders. A mortgage is lent to you based on what payments you can afford on a monthly basis, along with a deposit from you to support the purchase. If you have to take out a loan for the deposit, it suggests you can’t really afford the property in the first place.
Instead, though, you might be able to borrow 100% of the purchase price, if you have a guarantor who can support you with the deposit. However, we always recommend you speak to a mortgage adviser first so you have a clear idea of what your options are.
What’s the risk of losing my deposit?
When you make an offer on a property, it may take some weeks or months for all the legal and financial paperwork to be carried out. You need to send your deposit to your legal company so that they can exchange contracts, which guarantees your purchase and protects your deposit, should the sale fall through after exchange.
If the purchase falls through prior to exchange, you may incur fees for finance and legal work carried out, but you won’t risk losing any of your deposit money.
If the purchase falls through after exchange because you change your mind and pull out, then the seller would keep your deposit, as per the contract.
Property purchases can fall through prior to exchange, but it is rare for there to be a problem after contracts have been exchanged.
How do I get a deposit back if my purchase falls through?
When you exchange contracts this means the buyer and seller are legally committed to the purchase and sale of the property.
If you’ve already exchanged contracts and then the purchase falls through because the seller has dropped out, you will receive your full deposit back from your legal company.
How can I make buying a house less stressful?
It’s totally normal to experience anxiety over buying a house, as at the end of the day, buying a house is stressful. Fortunately, that’s the benefit of mortgage advisers. Part of their job, alongside providing excellent advice, is to take that stress and worry off your shoulders. To ease any concerns you may have, we’d recommend checking out our helpful first-time buyer’s guide to walk you through the whole process.
Mortgage Advice Bureau