If you are purchasing a property and you need a mortgage to fund it, in nearly all cases, you will also require a deposit. A mortgage lender may borrow you up to 95% of the funds needed but will want you to put some money into the deal as well. It is basic security for the lender to mitigate the risk that they are taking in case you cannot pay the mortgage. In that event, they would need to repossess the property and sell it to get their money back.

The larger percentage that the mortgage is the greater the risk to the lender, and this is why the rate of borrowing for a 95% mortgage is greater than the rate for, let’s say, a 70% mortgage. In simple terms, the lender has more chance of redeeming the borrowing balance if the loan is at a lower loan-to-value.

What deposit level will I need?

This will depend upon the circumstances of your application. The more severe your credit issue, the more deposit a lender will require you to put down for the purchase. Below we have listed a general guide to what deposit may be needed. This will also depend upon other circumstances that the lender may have to take into consideration. Your mortgage expert will have experience in dealing with cases like yours and will guide you through this.

Defaults

·      Historic defaults on a credit report may allow for a 10% deposit contribution and, in some cases, even as low as 5%

·      Defaults under three years old may require a deposit contribution of 15%

·      Defaults under two years old may require a deposit contribution of 20%

·      Defaults between three & twelve months old may require a deposit contribution of 25%

As we have already mentioned, the above is just a guide to deposit levels for people with defaults. If your default is low in value, or it is with a utility provider, then the deposit level could be lower. Speak to your mortgage expert about this and they will let you know what the deposit level will be.

County Court Judgements (CCJ’s)

CCJ’s can be dealt with more harshly than defaults by lenders, although this will not always be the case if the amount of the CCJ is low, typically less than £1000. As they are court orders, there is more of an emphasis on the amount that a CCJ is worth than a default.

·      Historic CCJ’s on a credit report may allow for a 10% deposit contribution and, in some cases, as low as 5%

·      Defaults under three years old may require a deposit contribution of 15%

·      Defaults under two years old may require a deposit contribution of 20%

·      Defaults between three & twelve months old may require a deposit contribution of 25%

Again, your mortgage expert will guide you through the deposit required.

Debt Management Plans (DMP)

The deposit level required when purchasing or remortgaging if you are in a DMP will be dependent upon a couple of factors. How long you have been paying into the DMP, and how you have conducted those payments.

If you have been managing your account well for over twelve months, then the deposit levels can start as low as 10% but as a general guide, 15% is usually the minimum deposit or equity level needed by lenders who will support an application whilst a DMP is in the background.

If you have been paying into your DMP for over three years, then you may find that the deposit level is much the same as the guide for defaults above.

Speak with a mortgage expert to get a more thorough breakdown of what deposit will be needed.

Bankruptcy

Deposit levels needed for Bankruptcy are more defined by lenders due to the fact that criteria work on the number of years that you have been ‘discharged’ from your bankruptcy.

·      One year discharged would generally be a minimum 50% deposit required

·      Two years discharged would generally be a minimum 30% deposit required

·      Three years discharged would generally be a minimum 20% deposit required

·      Four years discharged would generally be a minimum 10% deposit required

An important factor when considering a mortgage application post-bankruptcy is whether there was a property repossession within the original bankruptcy order. This will need to be disclosed to your mortgage expert as some lenders will not accept an application if someone has had both a bankruptcy and a repossession. 

Low credit score/Missed payments

This can be a tricky match. Some high street lenders will allow for one or even two missed payments as long as this is not a regular pattern. Some high street lenders are not happy with recent missed payments at all and other high street lenders will be more concerned with your credit score as long as you have not missed three consecutive payments.

Non-high street lenders are more flexible with missed payments and low credit scores because they credit search rather than credit score. They also allow for the odd credit blip, which is why they are a more flexible lender in the first place.

The downside of having to use a more flexible lender is that, generally, their interest rates are higher to allow for their more manual approach to lending. They will also ask for a lot more evidence when assessing your case, so the underwriting process takes longer, and there is more paperwork needed to satisfy the lender's criteria.

Deposit levels can start at 5% if the issue is only a case of a low credit score and go as high as 20%, depending upon the severity of missed payments. Speak with your mortgage expert to see what may be on offer; they will ensure that the correct lender is selected for your needs.

Where can my deposit come from?

This really does depend upon the lender. Some high street lenders are happy to take a deposit from non-family members, deposits from abroad, or even, in some circumstances, they are happy that a personal loan is being used to fund a deposit.

Non-high street lenders are usually stricter about where a deposit may be coming from. They may want to see that an applicant has at least 5% of their own deposit from savings before taking into account any deposit gifted by a third party. Any gift will need to come from a family member, and each lender will vary on what they class as a ‘family member’. The sale of an asset, such as a car, may be used as long as this can be clearly evidenced.

Your mortgage expert will know what types of deposit can be used for an application, and it is always a good idea to discuss this with them as soon as possible into the initial process.