Best cities in Britain to buy a home with a 5% deposit now

Hull is the most affordable city for a first-time buyer with a small deposit to snap up a home, new findings have revealed. 

With average property prices at £121,335, a buyer with a 5 per cent deposit in Hull will need £6,066 to get onto the housing ladder, according to The Nottingham Building Society.

Buyers willing to forgo a house and live in a flat or maisonette could get on the ladder for even less in Preston, where a deposit of around £3,820 is required for a 95 per cent loan-to-value mortgage.

Across the country’s top 20 biggest cities, the average sum needed for a 5 per cent mortgage deposit is £10,606, the figures suggest. 

For flats and maisonettes in cities, the average sum needed for a 5 per cent mortgage deposit is £7,605.

High loan-to-value mortgages were axed en-masse at the height of the pandemic, as lenders became increasingly risk averse.

In April this year, the Government launched a new state-backed 95 per cent mortgage scheme, giving buyers with a smaller deposit a better chance of being able to purchase their own home.

Stoke and Sunderland offer prospective buyers hope when looking for a home with a small deposit, with buyers needing around £6,316 and £6,668 respectively for a 5 per cent deposit. 

At the other end of the spectrum, London is the city where the highest sum for a 5 per cent deposit is needed. 

In the capital, a prospective buyer will need around £25,514 for a deposit if they need a 95 per cent loan-to-value mortgage. Even for flats and maisonettes, a buyer would need around £21,535 for a 5 per cent deposit.

Prospective buyers looking for a home in popular cities like Birmingham, Bristol, Leicester, Edinburgh, Leeds, Cardiff, Manchester, Coventry and Reading will all need five-figure sums to save enough for a 5 per cent mortgage deposit, The Nottingham said.

How does the Government-backed 95% mortgage scheme work?

In April, the Government launched a new scheme whereby it ‘guarantees’ 95 per cent mortgages for prospective buyers with 5 per cent deposits. 

The new scheme was first announced in the Chancellor’s Budget back in March 2021 and was designed to ensure lenders started offering 95 per cent mortgages again.

At the height of the pandemic, swathes of banks and building societies became increasingly risk averse and scrapped their high loan-to-value mortgage offerings.

Put simply, under the scheme the Government will shoulder some of the cost if the lender loses money. This could happen, for instance, if the borrower fails to keep up with their mortgage payments and the property is repossessed. 

Any buyer with a small deposit can in theory get one of the 95 per cent Government-backed mortgages available, and they are not restricted to first-time buyers. 

They can be used by anyone buying a main home, including previous homeowners and movers. Certain eligibility criteria apply. 

For example, the property cannot be worth over £600,000.

Lenders do not have to take part in the scheme, but a number of big-name ones including Barclays, Lloyds, HSBC, NatWest and Santander have done so. 

Taking one example, HSBC is offering a 95 per cent loan-to-value two-year fixed rate deal with a 3.99 per cent interest rate and a £999 fee.

There are now over 200 95 per cent loan-to-value mortgages available, including those within and outside the Government-backed scheme, according to information website Moneyfacts.

The Government-backed 95 per cent loan-to-value mortgage scheme opened on Monday 19 April and will run until December 2022. 

While the prospect of a 95 per cent mortgage will be appealing for some buyers with small deposits, it is important to note that the interest rate payable will typically be higher than for a lower loan-to-value deal. 

It is always sensible, if possible, to save up a higher deposit, where you will be in a better position to be able to get a mortgage with a lower interest rate.

Denise Wells, head of mortgage operations at The Nottingham, said: ‘There are a wide range of 95% LTV mortgages available in the market at present.

‘The data shows this makes raising a deposit much more achievable, with average 5 per cent deposits for the top 20 cities at £10,606 or £7,605 for flats or maisonettes.

‘That is still a substantial amount to save, and other property buying and moving costs should also be factored in, but it can be achievable with the right savings habits.

‘However, raising a deposit is only the start and first-time buyers have to consider how they will afford the mortgage throughout its term. It generally remains the case that the bigger the deposit the more competitive the rates.’ 

Five tips to help you secure a mortgage

Getting a mortgage can be stressful, complicated and difficult. But, here, Michael Taggart, chief executive of Taggart Homes, provides five simple tips for buyers to help them on their way to securing a home loan:

1. Examine your income and outgoings carefully 

One of the most important elements when applying for a mortgage is being able to demonstrate your financial stability.

Lenders want to see reliable and predictable spending, which will help to access your ability to repay your debts comfortably and on time. 

In most cases, lenders look at three months’ worth of bank statements and analyse your regular expenses and outgoings, it’s important that all of your bills are paid on time.

2. Check your credit file before the lender does 

When applying for a mortgage your credit file will play a large part in establishing your eligibility and affordability.

Ensure you have all of the information available to you by checking your score and history with the key credit reference agencies in the UK – your mortgage advisor will be able to advise which agency is most relevant to you.

3. Boost your deposit 

 Loan-to-value is a measure banks use to determine the deposit percentage against how much needs to be lent by the bank. 

The lower the LTV and the higher the deposit, the better rates you’ll be able to achieve on your mortgage.

4. Get on the electoral register 

Ensuring you’re listed on the Electoral Register is very important and often gets overlooked, especially when moving house. Registering to vote allows lenders to check your identity efficiently.

You can register on the electoral roll for free by simply heading to the UK Government website, but bear in mind it could take some time to be added and therefore be reflected on your credit report, so do this in plenty of time.

5. Have all your documents ready 

When applying for a mortgage, the lender will ask for a number of documents dependent on your circumstances. 

It is helpful to have all of these prepared and sourced beforehand to prevent any delays in your mortgage application.

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