A huge aspect of any mortgage is the deposit, and the amount you put down has numerous implications on your monthly repayments going forward.

The minimum contractor mortgages deposit currently required is 5%. This may be available in the form of a standard mortgage or via certain Government Schemes offered to help first-time buyers to get onto the property ladder, such as the “Help to Buy Scheme”. There is no maximum limit to the amount of deposit that you can put down, subject to minimum loan amounts that will vary from lender to lender. Your mortgage product and corresponding interest rate will be directly linked with the level of deposit. The various products available will be tiered based upon 5% increments, so different products will be available on the basis of a deposit of 5%, 10%, 15%, and so on; the cut-off point of available products usually being at the 40% mark.

The interest rate applicable to the varying level of deposit will of course vary; however, the greatest differences are usually seen between 5% to 10%, 10% to 20%, and 20% to 40%. On this basis, the larger the deposit you have, the more competitive the interest rate will be, and the cheaper your monthly repayments will be. You will often hear lenders refer to products marketed in reference to the “Loan to Value”. This is simply the percentage of the property value that will be advanced to you. Therefore, a loan to value of 90% is equivalent to a deposit of 10%.

Contractor mortgage with 10% deposit

Lenders tend to favour individuals who have higher deposits, but this is true to anyone looking for a mortgage and not just contractors. To access the most competitive rates you should be aiming to save anything between 10% and 25%. There are mortgage options out there for less than that, but they will be on a much higher rate.

Once you have established what you are comfortable in repaying on a monthly basis, and the amount of deposit you will be able to put down, you will have a fairly good idea of the purchase price of properties that you can begin to look at. You can also ascertain an appropriate purchase price through an affordability assessment with a particular Mortgage Provider. This will indicate the level of advance that should be available to you based upon your income and ongoing monthly commitments.  Combining this figure with the level of deposit you are able to put down will subsequently give you an indication of the maximum property purchase price you could look to buy at.

To a certain extent, this can be consolidated via an “Agreement or Decision in Principle”. This is a conditional offer from the lender that they will be able to lend you x amount on the basis of an initial assessment and subject to supporting evidence of the declared information, amongst other factors such as a satisfactory valuation of the property. It is important to note that this is not an agreement of the provider to loan you the money, and the conducting of this agreement /decision will in most circumstances leave a “footprint” on your credit profile. This is a “mark” on your credit profile that will be visible to other credit providers. If you have numerous “searches” on your credit profile, it can have a detrimental effect on your obtaining of credit with associated providers.

Therefore, whilst offering a certain degree of reassurance (particular for First-time Buyers), this is not a stage that should be taken lightly.