Is 10k Enough To Buy A House UK?

Nikka Sulton

Is 10k Enough To Buy A House UK?

Accumulating a house deposit is increasingly challenging for many young individuals. Can £10k suffice to buy a house in today’s property market? This post explores the adequacy of a £10k deposit, delving into the comprehensive costs involved in home buying, encompassing deposit considerations and insurance expenses. Purchasing a home stands as a substantial financial undertaking, requiring a meticulous evaluation of all associated costs in the current property landscape.

How much deposit do I need to buy a house?

The challenge of saving for a house deposit is more pronounced among young individuals. Delving into the question of whether a £10k deposit is sufficient, this post explores practical aspects:

Deposit Requirements: Most lenders insist on a minimum 5% deposit. This implies that with a £10k deposit, one realistically qualifies for properties in the £200,000 range. While there are rare 4% or 3% deals, they’re elusive. Finding such a deal might expand affordability.
Location Impact: The affordability of properties is intricately tied to location. In areas like Scotland with an average house price of £185k or North East England at £163k, a £10k deposit could make homeownership achievable. Opting for a flat widens possibilities, albeit London might still pose challenges; however, many other regions offer viable options, especially for those comfortable with compact living spaces.
Financial Implications of Lower Deposits: It’s crucial to acknowledge that opting for a lower deposit translates to higher long-term repayments, potentially leading to increased upfront expenses. Younger individuals may secure extended 30-year mortgages, distributing costs for more affordable monthly repayments. On the flip side, older individuals might face limitations on accessing such mortgages, resulting in higher monthly payments.
Role of Income and Credit Score: Mortgage approval extends beyond deposit affordability. Meeting additional criteria, such as a minimum income threshold and a favorable credit rating, is imperative. Mortgages with very low deposits often scrutinize these factors more closely. Opting for a higher deposit reduces the significance of elements like income and credit score in the approval process. Understanding these dynamics aids in making informed decisions about the mortgage application process.

Buying a below-average-priced house

Property Value: £100,000
Mortgage Size: £95,000 (95% Loan-to-Value)
5% Deposit: £5,000
Mortgage Fees: £1,150 (Approximately: £100 account fee, £50 transfer fee, £150 valuation fee, £800 conveyancing fee – note: these vary by provider)
Stamp Duty: £0 (Not applicable for a property of this value)
Insurance: Averaging around £100 annually

Total Initial Expenditure: £6,250

Average cost

Consider additional expenses like moving costs, purchasing new furniture, or relocating existing furniture in your overall budgetary planning.

Buying an average-priced house outside of London

Property Value: £302,000
Mortgage Size: £286,900 (Unassisted Purchase)
5% Deposit: £15,100
Mortgage Fees: £2,950 (Approximately: £1000 arrangement fee, £150 account fee, £50 transfer fee, £250 valuation fee, £1,500 conveyancing fee – note: these vary by provider)
Stamp Duty: £0 (Not applicable for first-time buyers on a property of this value)
Insurance: Averaging around £180 annually

Total Initial Expenditure: £17,130

Note: Prices for fees can vary by provider; additional considerations include potential moving costs and any needed furniture purchases.

Can I afford to get a mortgage?

Typically, a 5% deposit is required to buy a home, although some 100% mortgage options exist, mostly as guarantor mortgages. While a 5% deposit is quicker to amass, delaying for a larger deposit expands lender options and lowers interest rates.

Mortgage deals are categorized by Loan-to-Value (LTV) ratios, ranging from 60% to 95%. Lower LTVs, associated with larger deposits, secure better interest rates. Yet, saving 40% as a first-time buyer is challenging. If on the brink of an LTV bracket, it’s beneficial to save a bit more to access more favorable rates, like moving from a 9% to a 10% deposit.

Using an Agreement in Principle (AIP)

A Mortgage Agreement in Principle (AIP), also known as a Decision in Principle, provides an estimate of the amount a lender is likely to offer for your mortgage, pending formal application checks. Although not a guarantee, it aids in determining affordable properties, preventing disappointment from exploring homes beyond your budget. Additionally, an AIP highlights your seriousness as a buyer when scheduling property viewings.

How much can you borrow for your first home?

Several factors influence your borrowing capacity, with affordability being paramount. Lenders assess your total household income, deducting current expenses to gauge potential loan repayment capacity. Our affordability calculator aids in this, though personal circumstances and expenditures may not be fully considered.

Lenders commonly use income multiples to determine loan offers, often around four and a half times disposable income. Personal factors, like bad credit or being newly self-employed, may alter this. As a reference, with the UK’s average income at £31,772, an average borrower could anticipate around £142,974.

Joint applicants can combine incomes for a higher loan amount, with lenders employing different assessment methods. This includes three and a half times combined income or four and a half times the highest earner’s income, plus the lowest earner’s income, with the larger loan size prevailing.

Fees involved with buying a home

Mortgage Arrangement Fee:

Potentially the largest cost, up to 2% of the loan.
Some mortgages skip this fee but may have higher interest rates.
Can be added to the mortgage but incurs interest.

Mortgage Account Fee:

Charged for account setup, maintenance, and closure.
Typically £100 to £300.

Telegraphic Transfer Fee:

Charged by the lender to transfer the mortgage loan.
Around £50.

Valuation Fee:

Ensures the property’s value matches the loan amount.
Ranges from £150 to £1,500.

Conveyancing and Solicitor’s Fees:

Legal transfer of ownership, buyer covers costs.
Generally £800 to £2,000.

Stamp Duty (SDLT):

Tax on properties above a certain value.
First-time buyers receive discounts.
Varies in England, Northern Ireland, Scotland, and Wales.

Higher Lending Charge:

May apply if mortgage exceeds 80% Loan-to-Value (LTV).

Home Insurance:

Buildings insurance required by lenders.
Typically £100 to £200 annually.

Moving Costs:

Varied based on possessions and distance.
Renting a van or professional removal services have associated costs.

Renovations:

Additional costs for home improvement projects.
Extensive works may include adding extensions, loft conversions, conservatories, kitchen refurbishments, with costs varying widely.

Consider these factors to plan comprehensively for the financial aspects of buying a home.

What affordable home schemes are available to help first time home buyers?

1. Shared ownership

Shared ownership, a facet of the government’s Help to Buy initiative, offers an alternative approach to property ownership. Instead of purchasing an entire property, you acquire a share, sharing ownership with a housing association. Rent is paid to the association for the portion you don’t own.

Initially, you can buy between 10% and 75%, tailoring your loan to cover only that percentage of the overall property price. This approach enhances affordability, easing financial constraints and lowering the deposit requirement.

2. Guarantor mortgage

Even with a substantial deposit, first-time buyers may find it challenging to meet affordability criteria, particularly in high-priced areas. A guarantor mortgage provides a solution by involving an additional person, often a family member, as extra security for the loan. Typically, they leverage their property or savings to support you.

In the event of repayment challenges, the guarantor commits to covering them on your behalf. Generally, they can be removed from the mortgage once you’ve repaid a predetermined amount to the lender.

3. Family assisted mortgage

A family-assisted mortgage is essentially a form of guarantor mortgage. In this arrangement, a family member or friend deposits funds into an account connected to your mortgage. After a specified period or upon reaching a certain repayment milestone, the guarantor receives their full deposit back, often with accrued interest.