Dear Delia…

Dear Delia, My client is looking to get a foot on the housing ladder but only has savings of around £6,000. He has seen many lenders raising their minimum deposit to 25% and as a result is reviewing his options. What would you advise him to do?

Delia says: Your client should concentrate on saving for a deposit as Thomas Khirrecu of Beacon Asset Management and Bev Newman of Stroud & Swindon point out. Have you got a problem for Delia? Email mortgage.strategy@centaur.co.uk

Intermediary response

Thomas Khirrecu is a mortgage broker at Beacon Asset Management
Many lenders are tightening their lending criteria so it’s more important than ever to ensure your client deals with a broker to get the best product for his needs and circumstances.

It’s crucial to get as much information about his financial situation as possible. His current salary and the price of his chosen property will determine the products he’s eligible for.

Your client has said that he has £6,000 put aside for a deposit, but is he aware of the other costs involved in moving home? Stamp Duty, legal fees and valuations all add up, so it is important to know if he can pay for these hidden extras.

Once you are happy that your client is in a financial situation to buy his property, we can look ahead to the options available.

Given his small deposit, he may be better off looking at schemes such as guarantor mortgages or shared ownership deals, but they have specific requirements that would have to be discussed with your client first.

Another option would be to purchase the property with a sibling or friend. Alternatively, he could see if his parents would be able to lend him any money to put towards the deposit as this is likely to be the biggest stumbling block to getting on the property ladder.

Having a lower deposit will not only mean your client is likely to pay a higher rate of interest on his mortgage but he will also face the higher lending charges typically payable on 75% LTV deals and above.

So it would be worth seeing if there is any way that he could raise further money for a deposit before agreeing to proceed.

Once you are happy that your client has enough cash set aside, one product that would suit his needs would be a two-year fixed rate deal from Ulster Bank at 5.65%.

This product has low set-up costs, featuring a £499 lender fee, no valuation fees and an exit fee of only £125. These low fees mean your client won’t have to spend most of his savings on them, allowing him to put the majority of his cash towards the deposit.

And given the prevailing market conditions, he would be wise to hold off buying if he cannot put down a significant deposit to avoid the dangers of negative equity.


Lender response
Bev Newman is intermediary sales manager at Stroud & Swindon
Before we can recommend the best products for your client, we need to take a detailed look at his financial situation.

First, we need to know the price range of the property he is looking to buy as well as his salary.

Having a higher salary will help him secure a bigger advance. But he may find that depending on the price of the property he’s interested in, he will need to spend time saving for a bigger deposit.

As your client is already aware, some lenders are increasing the minimum deposits buyers must put down. But he must also realise that he can get a much better rate on products with lower LTVs, so it’s in his best interests to spend time saving as big a sum as possible.

It is important to ensure your client is also aware of the expenses involved in buying property. This is another reason why it’s vital he saves as big a deposit as he can before buying. He will potentially pay mortgage fees and, depending on the price of the property, he may also have to stump up Stamp Duty.

Given the volatility in the market at present, your client must also assess whether now is the right time to enter the housing market.

It would be wise to ensure that your client does not rush into a purchase until we’re more confident about what’s going to happen to house prices in the near future.

But if your client is unable to put his plans on hold, we can look at what is available to him with his current level of savings.

He needs to take out a product that will give him the best purchasing power. We would offer a buy-to-share scheme agreed by the Inland Revenue.

This scheme takes into account any extra income borrowers can obtain as a result of renting out one of the rooms in their properties. This can equate to as much as £4,250 per year tax-free, a tidy sum that would bolster the mortgage your client could afford.

The deal is available on all Stroud & Swindon intermediary house purchase products and so should help your client to find extra funding to make the home buying process a little easier.

I would strongly recommend your client has sufficient savings behind him before taking the step of buying his own property in the prevailing market conditions.

But once you and he are happy with his financial situation and are satisfied he has enough cash behind him, taking advantage of innovative products in the market can offer a great deal of help to buyers looking to take that first step onto the housing ladder.