How to get onto the property ladder and the costs/implications of doing so? 2 November 2018 at 12:01PM edited 30 November -1 at 1:00AM in Mortgage-Free Wannabe 2 replies 439 views

HiddenShadows

Hiya, I'm new to the idea of a mortgage and would like some advice. I'm thinking of investing all my money into a cash lifetime ISA, how much will I need for a 10-20 year mortgage? I'm thinking I can save between £15,000 - £20,000 up for a deposit (including the 25% bonus).

Will this be enough?
How do mortgage deposits work?
Is there an optimal deposit for a reduced interest rate?
Is there ever a time where it's better not to instantly get a mortgage?
Is it better to use a larger deposit on a cheaper property compared to a relatively small deposit on a more expensive property?
The lifetime ISA has restrictions of up to 450k, but I was thinking no more than 150k or so to get started.

Please, could you be as informative as possible!

Thank you so much!

bexster1975

Hello hidden shadow and welcome

To answer your questions, in order:

No idea. £20,000 will be a 10% deposit on a £200,000 property. Is that enough? Need to know where you are buying/size of property wanted/property cost to answer that. Also, different lenders will lend different % of value of property. 10% deposit is good I would say as a first time buyer.

Mortgage deposits work by reducing your loan to value- LTV and generally make loans cheaper/available to you.

The optimal deposit for reduced interest would be about 40% as below 60% LTV there appears to be little change in rate from what I've seen. In reality, the bigger the deposit the better the rates/greater your choices.

Whether there is ever a better time not to instantly get a mortgage is a question I can't really answer. Immediately before house prices crash?! Not really sure what the question means if I'm honest. If you can't afford a mortgage, you shouldn't get one is my best answer.

Depends what " better" means. Moving house is expensive, so you are often advised to buy the most house you can afford at a given time - regardless of whether you will then have a smaller deposit. Personally, I like living in the size of property that I need ( bit of an amateur minimalist though). If you don't need a five bedroom McMansion, why pay for one and all the maintenance that involves. Bigger deposit means cheaper interest rates, but not generally that much cheaper.

Hope some of the above helps. I'd start with working out what you could reasonably afford to borrow, what that will buy you where you want to live and go from there.

Good luck

Bexster

datlex

For me living in the north east, £9000 was enough for a deposit (90% mortgage). - £90000 2 bed bungalow. When I arranged my mortgage, I looked initially at 22 years, but when I spoke to my mortgage company they suggested a shorter term - as I could afford the repayments.

Regarding properties, mine is cheaper than others I have looked at but for me it is better. So don't assume more expensive equals better for you. Cheaper of course means financial freedom sooner rather than later. Remember also interest rates change. Even if you fix now, at the end of your fix they are likely to change even if you re-fix. Your mortgage company should do a test as to whether you can afford the repayments at a higher interest rate.