Question
I have inherited a sum of money from a relative and am wondering if I can put it down as a deposit to buy a house. How much will I need to pay for a property if I am a first-time buyer?
I inherited £15,000 at the age of 28. I will be purchasing on my own and have no other savings apart from a £1000 reserve in my bank account for emergencies.
Darren’s answer
Inheritance is a common deposit source and can be used to purchase your first home. This can be proven through a will letter or bank statements.
Regarding the amount of deposit you will need, this depends on the value of the property. It is important to note that the mortgage amount is based on the value of the property and not the purchase price.
If you purchase above market value, it will take more than your deposit.
The typical minimum deposit for first-time buyers is 5% of the property value, meaning £15,000 can support a purchase of up to around £300,000 (at 5%).
A 10% deposit is often more competitive, reducing interest rates and improving chances of approval – your £15,000 will equate to a 10% deposit on a property worth £150,000.
In general, the more deposits you have will provide better mortgage deals – lenders offer lower interest rates at 10%, 15% and 20% deposit thresholds, so expanding to higher percentages (if possible) can save money in the long term.
What the above means is calculating loan-to-value (LTV). This is calculated as follows:
Loan amount ÷ property value x 100
It’s great to have a £1,000 emergency fund. When considering your deposit, remember that you will need to budget for the initial costs, not just the deposit. This can include attorney’s fees, appraisal fees, and moving costs.
Depending on when you plan to buy, I advise you to get Decision in principle (DIP) Which may also be known as an Agreement in Principle (AIP).
This is where lenders will evaluate your affordability (income, expenses, credit score) to see how much you can borrow. This will help you when considering how much deposit you will need.
Many major lenders offer first-time buyers additional incentives (lower deposit requirements, no-fee deals, cashback or flexible criteria) which is worth asking your broker about.
Speak to a broker who will guide you through the process from start to finish, ensuring you get the best deal to suit your circumstances.
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