Whether you’re buying a house, renting, buying expensive items or setting up a bank account, deposits are an important part of all of these processes. So this guide is going to run through things to know for bank deposits, and deposits for when you’re looking for a house. If you don’t have a deposit, check out my video on budgeting.
Simply put, a deposit in this sense is money that you pay into a banking institution. When you do this, you are essentially agreeing for the banking institution to use your money to make loans. They then repay you your money with interest on top. The banking institutions make money by charging more interest on the loans they give than they pay back to you.
When it comes to deposits for houses, there are a few different types. The type of deposit that you’ll need depends on a few factors. But, the main factor is whether you are buying or renting the property.
Buying the property
If you are trying to buy the property, then a deposit is simply a large sum of money. This sum is used to reduce the amount you need to borrow to buy the property. This would mean that the lender is risking less money, and so you are less risky. How much you need to save for your deposit depends on how much the property costs. Normally however, you will need at least 5% of the property’s value as a deposit. But, the more money you have to put towards a deposit, the more likely you are to be approved for a mortgage. Additionally, if you have a larger deposit, you are more likely to be offered more favourable terms on your mortgage deal.
If you are struggling to save enough money for a large deposit, there are schemes available that could help you get a larger deposit. These schemes could be either government backed or not government backed.
Government backed Help to Buy
The government backed scheme is intended to help first time buyers purchase a new build property. So long as you can provide at least a 5% deposit towards buying the property, you could be able to borrow up to 20% to increase the size of the deposit. However, in London you could borrow up to 40%. For more information go to the government help section.
Non-government backed help to buy
This scheme differs in that instead of being exclusively for new build homes, you can purchase older homes. This massively opens up the market for first time buyers. Additionally, so long as you provide a 5% deposit towards the house, you would be able to borrow 25% from the scheme. This would give you a total deposit of 30%, which can massively improve your chances of getting a mortgage offer, as well as being offered better terms.
Bank of mum and dad
Gifted deposits from close family are normally accepted by most lenders. This normally includes parents, grandparents and siblings.If you are lucky enough to have a close relative who will give you the deposit, it could really help you get further up the property ladder. Note, however, it must be a gift rather than a loan.
There are a few different types of deposits involved when you’re renting a property. The best known of these are security deposits. This is a lump sum paid to the landlord, normally between 4 to 6 weeks rent, in case of damages to the property or unpaid rent. It depends on your tenancy agreement, but if you damage the property or the landlord’s furniture, then they will use the security deposit to fix the damage. If you get to the end of your tenancy agreement and your landlord hasn’t used your security deposit, it should be repaid to you. In some cases, your landlord will have to place your security deposit in an accredited tenancy deposit scheme, and give you information about the scheme.
Sometimes you may also have to pay a holding deposit. This is more common in bigger cities such as London. When you pay a holding deposit, you are confirming your interest and your intention to rent the property. The landlord should then stop showing the property to other prospective tenants. When you move into the property you should get your deposit back. However, if you back out of renting the property, you will struggle to get it back in most situations. Check out my video on renting property.
Buying expensive items
Much like a holding deposit, when buying an expensive item such as a car you may pay a deposit to confirm your interest. In this scenario the seller should not be offering the item to other potential buyers. However, if you were to back out of the purchase, the chances are you’re not going to get your money back. So, as with all big purchases, make sure you’re 100% willing to go ahead with the purchase.
Deposits are an important part of modern day life. Whether you’re buying a house or opening a bank account, you’ll be needing to pay deposits. An important thing to remember is that when you pay a deposit, there is a chance that you may not see that money again. You must make sure you are sure about the purchase before you commit, and the person you are paying the deposit to is reliable, or you could end up losing money.
Promise Money is a broker not a lender. Therefore we offer lenders representing the whole of market for mortgages, secured loans, bridging finance, commercial mortgages and development finance. These loans are secured on property and subject to the borrowers status.
More than 50% of borrowers receive offers better than our representative examples
The %APR rate you will be offered is dependent on your personal circumstances.
Mortgages and Remortgages
Borrow £270,000 over 300 months at 7.1% APRC representative at a fixed rate of 4.79% for 60 months at £1,539.39 per month and thereafter 240 instalments of £2050.55 at 8.49% or the lender’s current variable rate at the time. The total charge for credit is £317,807.66 which includes £2,500 advice / processing fees and £125 application fee. Total repayable £587,807.66
Secured / Second Charge Loans
Borrow £62,000 over 180 months at 9.9% APRC representative at a fixed rate of 7.85% for 60 months at £622.09 per month and thereafter 120 instalments of £667.54 at 9.49% or the lender’s current variable rate at the time. The total charge for credit is £55,730.20 which includes £2,660 advice / processing fees and £125 application fee. Total repayable £117,730.20
Annual Interest Rate (fixed) is 49.7% p.a. with a Representative 49.7% APR, based on borrowing £5,000 and repaying this over 36 monthly repayments. Monthly repayment is £243.57 with a total amount repayable of £8,768.52 which includes the total interest repayable of £3,768.52.
THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME
REPAYING YOUR DEBTS OVER A LONGER PERIOD CAN REDUCE YOUR PAYMENTS BUT COULD INCREASE THE TOTAL INTEREST YOU PAY. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR ANY OTHER DEBT SECURED ON IT.
Promise Money is a trading style of Promise Solutions Ltd – Company number 04822774Promise Solutions, Fullard House, Neachells Lane, Wolverhampton, WV11 3QG
Authorised and regulated by the Financial Conduct Authority – Number 681423The Financial Conduct Authority does not regulate some forms of commercial / buy-to-let mortgages
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