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AIBU?

Share your dilemmas and get honest opinions from other Mumsnetters.

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Original poster

Buying a house with 5% deposit

38 replies

Silvertincan · 27/10/2019 08:42

Looking to buy our first home, we have worked out if we bought a house for around 180-190k out repayments would be about £750ish with a 10% deposit or £850ish with a 5% deposit. £100 each month doesn't really sound like a big difference to us, but having a spare 10k does!!

I'm desperate to buy sooner rather than later, as we will be paying less that we are renting and for a nicer/bigger property.
Our mortgage will still be over 25-30years (we are young, under 30) but the spare savings appeal much more to me than putting down that extra 5%.

So my question....
What do you think about 5% deposits? Has anyone had any experience doing this who can advise us?

Thanks!

OP posts:

orangeteal · 27/10/2019 09:33

For us it massively paid off, we fixed for 2 years, within that 2 years our house had increased in value enough to refix at 85% LTV. It wasn't a great rate for those 2 years but as you say we couldn't have saved the additional 5% in that time, rather than save it the house price increase did it for us, and that out stripped the interest cost over the 2 years. We don't even live in an area that's increasing in value that much tbh, but the key is buying for a good price, it wouldn't have paid off if we hadn't of got a good price.

The market seems quite stagnant atm so there's opportunity for you to buy at quite a good price and interest rates don't appear to be going anywhere soon, the risk will be the impact of Brexit on value, with a high LTV you are at the mercy of the market much more, but id be reluctant to fix for 5 years at a 95% LTV rate.

orangeteal · 27/10/2019 09:36

Ours wasn't a new build either, loads of mortgage companies do 95% mortgages, our broker didn't mention it at all.

babycatcher411 · 27/10/2019 09:40

I started off with a mortgage with 5% deposit, as it was the only way to buy the house and have the money to renovate. I took the deal only for 2 years, on the knowledge that when I redid it, my equity (due to the renovations) would be higher and my loan to value would be better.
It was painful, for 2 years, paying a mortgage that barely even touched the interest it was incurring. However it was the best way forward. Having now redone the mortgage the interest rate is much better for the long run.

Personally from that experience, in your position I’d put down the biggest deposit I could (although don’t leave yourself cash broke), to ensure that my interest rate was as low as possible, otherwise a significant amount of that extra you are paying is just hitting the extra interest and not the equity.

Bellringer · 27/10/2019 09:46

Big deposit and save aggressively. Take out a secured loan a few months on to do the place up. Interest is money down the drain. Alternatively have interest only mortgage (rent from bank) and save for repairs etc. We have 1.6%, you will notice the he difference when your fix expires.

Mummyoflittledragon · 27/10/2019 09:50

With brexit looming I would tend to put the 10% down and live with the house and save to improve it. You will already have £100 a month to do this. If you could double that you will have saved around 10k in 4 years (assuming interest rates don’t increase dramatically). The first few years of a mortgage, you’re really only paying off interest so most of that money will also be saved interest payments.

Apples78 · 27/10/2019 09:56

How long you’re planning to stay in the property is a really important consideration here. If you’re only looking to live there short term then a 5% deposit could be risky, as you could end up in negative equity and unable to sell. If you’re wanting to live there for five, ten years plus then it should be fine.

francienolan · 27/10/2019 10:24

If your agreement in principle allows it i think a number of people do this. I would make sure it's a place you want to stay in for a number of years so if the value goes down in brexit etc you won't be screwed with negative equity.

Our bank requires us to have a 14% deposit but I am an immigrant so the rules are stricter--many of my British friends here had less than 10% deposits on their homes.

SafetyAdvice0FeedWhenAgitated · 27/10/2019 10:26

Our bank requires us to have a 14% deposit but I am an immigrant so the rules are stricter--many of my British friends here had less than 10% deposits on their homes
😮 I am non Brit and got 5%. Also. 14 is just such an odd number.

Original poster

Silvertincan · 27/10/2019 10:27

It's a nice area and three bed house we are looking at, so we could comfortably stay there long-term. My family all live in the area also, and have settled there permanently, so I'm not too concerned about selling it on short-term. I'd be hesitant about taking out a second loan to do-up the house, that's why the 5% is so appealing. Brexit is a worry though, if prices fall, but I suppose that is a risk for everyone in different ways. We can afford to wait until late spring/summer to buy, so maybe that will give us enough time to have an idea how Brexit will play out

OP posts:

nrpmum · 27/10/2019 10:31

@Silvertincan I'm glad you are seeing a broker. They will talk through your options with regard to deposit and the difference in cost.

Apples78 · 27/10/2019 10:36

I'd be hesitant about taking out a second loan to do-up the house

I know what you mean. Plus, surely the mortgage company will offer a more favorable rate in terms of interest and time to pay it back than a standard loan? If that is the case then it makes sense to add it on to the mortgage than take out a separate loan IMO.

Soontobe60 · 27/10/2019 10:40

If you're planning to stay there a long time then short term drops in house prices won't affect you. I'd try to get a fix over a longer period as this Brexit shit is going to destabilise our country for a few more years! At least you know what your payments will be for that time.
Make sure your improvements add value, rather than just make the house look nicer. Spending £5k on a new kitchen in a house where the current kitchen is 50 years old will add value. If the current kitchen is fine, then putting in a new one won't add value. Same with a bathroom.
We've been spent about £30k renovating our house, but haven't added that in value, but we've no intention of moving.
BTW, you don't have to decide between a five or ten percent deposit, you could go for a middle figure.

BuildBuildings · 27/10/2019 10:57

We bought with 6% deposit the difference between 5 and 6 in terms of rate was worth it. We were either going to have to rent again or scrape together enough deposit to buy. (we'd moved region I'd not worked while looking for a new job) our mortgage is cheaper than rent, we don't have to deal with landlords or agents and hopefully will get at least what we paid for it. I think in an ideal world we'd have loads of deposit for the best rate. But in reality if its better than renting go for it.

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