Published 10 Jan 2020
Shared Ownership Deposits – Things You Need To Know
If you require a mortgage to buy a home, it’s likely that you’ll need to put down a deposit. A deposit is a lump sum of money that you pay upfront, allowing you to own part of the property outright; while the rest of the agreed sale price can be paid by a mortgage. A deposit reassures the seller that you’re serious about purchasing the property.
To give you further insight, we’ve asked our friends at SRC Mortgage Solutions to provide an overview of some of the key things to consider with regards to deposits for Shared Ownership purchases.
How much do you need?
Most lenders require you to pay a deposit towards the purchase of your property. This can be from as little as 5-10%, but in most cases the more you can put down the better. A bigger deposit means more lender choice and better mortgage deals, which can result in cheaper monthly repayments.
If you’re buying a shared ownership property, the deposit will be based on the value of the share you are purchasing. *For example, the deposit required for someone buying a 50% share of a property valued at £300,000 would be calculated as follows:
Property Value - £300,000
Share Purchased (50%) - £150,000
Deposit (10%) = £15,000 (£150,000 x 10%)
Some lenders will require a larger deposit on ‘new build’ properties, with many asking for a minimum of 15% on a ‘new build’ flat.
*We advise you to speak to your mortgage advisor to understand what deposit amount is required from specific lenders.
Source of deposit
You will need to evidence your deposit to the mortgage lender by providing a statement showing the source. Where money has been built up in your current account, three months bank statements should be sufficient. However, where money has been transferred to your bank account from a separate source e.g. an investment, you will need to provide evidence of the original source.
It is now very common for buyers to receive gifts from family to help with their home purchase. Most lenders will accept gifts but will insist on the source being verified. Some sponsor’s may be uncomfortable with disclosing their personal and financial information, so it’s important that you discuss this with them in advance.
Sponsor's will be required to:
• Sign a letter stating that the gift is unconditional, not repayable and does not entitle them to any interest in the property.
• Proof of ID e.g. certified copy passport or driving license (photo version)
• Proof of address e.g. certified copy of a utility bill/bank statement
• Evidence the source e.g. 3 three months bank statements (or certified copies)
Please note that gifts from overseas may be subject to a higher level of scrutiny and in some situations may not be accepted - but please speak to your mortgage advisor who can advise on an individual case basis.
When are deposits payable?
Deposits are normally payable on ‘exchange of contracts’, so it’s important that you have the money readily available. With some ‘new build’ properties you are required to ‘exchange contracts’ within 28 days of agreeing to purchase. Therefore if your deposit is coming from the sale of an investment or a family gift, you will need to act quickly to ensure there are no delays.
Your solicitor will contact you to request the deposit in readiness for ‘exchange of contracts’. The sum required on exchange is normally 10%, although this may be lower if the deposit you are paying is lower e.g. 5%.
Remember once contracts have exchanged you are committed to buy and your deposit is not normally refundable.
The deposit is by far the biggest thing you'll be saving towards when purchasing a home and although saving to buy your first property can seem daunting, its worth having a clear and realistic plan in place to make it seem much more achievable. The first step is work out how much you need to save each month, then explore all the savings options available to you while seeking advice from knowledgeable mortgage advisors, can be invaluable in helping you reach your home buying goals.
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