Getting a Loan For a Mortgage Deposit

Before 2008, banks, building societies and specialist lending firms were all willing to lend the right people 100% of the mortgage they needed. This meant that they did not need to put down a deposit, as the full price of the property was covered by their mortgage. However, when the economy took a turn for the worse, the government ordered banks to do away with the 100% mortgage as a way of protecting their investments. This means people who would ordinarily have qualified for a 100% mortgage now have to consider taking out a loan for a mortgage deposit.

When most banks stopped the 100% mortgage deals, they reverted to offering borrowers a 95% mortgage instead. This left borrowers with an affordable 5% mortgage deposit to find. However, this did not last long and currently the most reasonable mortgage rates and lenders offer a maximum of a 75% mortgage, which leaves borrowers with 25% of the property's asking price to find as a deposit. This is why many people now need to take out a loan for a mortgage deposit. While a loan for a mortgage deposit is no different than a loan for anything else, it is important borrowers remember to add the repayment amount to their monthly mortgage payments. A 25% deposit will see you lending £25,000 for a mortgage of just £100,000. Lloyds TSB offer a competitive loan rate of 4% on a £25,000 repayable over a five-year period, however, this still works out to be a monthly repayment of around £460.

The National Westminster Bank allow you to repay a loan of £25,000 over a 7-year period, with an interest rate of 4.2%, this works out at monthly repayments of £340. These interest rates are subject to status and if your credit record has any blemishes, this will affect the interest rate as well as the loan amount you are offered. When applying for a loan for a mortgage deposit, it is important you do not overstretch financially. It may be better waiting a couple of years and saving towards your deposit, so you can buy your property knowing you are financially secure.


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