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Guide To Mortgages - part 2

Deposits

Once you have found out how much you can borrow, you need to consider the deposit you will need.

Most lenders will allow you to borrow up to 95% of the value of the property. So you will need to have 5% of the value to put down as a deposit, as well as other money to cover fees etc.

While there are lenders that will give you a loan of 100% of the value of the property, you will normally be charged a higher interest rate than if you took a 95% - or even lower - mortgage.

The larger the deposit you put down, the better all round it will be for you. You will pay a lower rate of interest on the mortgage. Plus, should property prices fall, you reduce the risk of going into "negative equity".

Negative equity is where you have a mortgage amount that is more than the value of the house. This means that when you eventually go to move, you will not have any equity in the house to use as deposit and will have to possibly even find more money before you move so that you can settle your existing mortgage.

Other Costs

Once you have your deposit sorted, you will also need to have some money put aside for additional costs associated with moving and / or buying a home.

Removal fees are just one consideration. The major costs you need to have sorted are those for the property valuation; the survey; plus legal fees. And then there is, of course, stamp duty!

Whenever a house over £124,999 is bought, stamp duty is paid to the Chancellor of the Exchequer. It is in effect, a tax.

Currently, as at November 2006, the amounts payable are:

Property value Stamp duty
£125,000 or less Nil
£125,001-£250,000 1%
£250,001-£500,000 3%
£500,001 or more 4%

These additional fees will run in to thousands of pounds. Therefore, it is important that you have as much money behind you as you can.

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