TSPC Jargon Busters: Deposit
02 October 2023
In our Jargon Buster series, we break down the terminology of the property industry to help you feel confident and in control of your home-buying journey.
In this article, we’re discussing the term ‘deposit’, and what it means when buying or selling a property in Scotland.
What is a deposit?
A deposit is the amount of money you pay upfront towards the full cost of a property while your mortgage covers the rest.
Benefits of a bigger house deposit
The bigger your deposit, the smaller your loan and the lower the monthly payments. Plus, as the deposit size increases, the interest rates available tend to come down as it is less risky for mortgage lenders.
Your chosen property agent and mortgage adviser can advise you on your budget in more detail, and give you up-to-date advice on the current property market.
How much is typically paid as a deposit?
The amount of the deposit can vary depending on several factors, including market conditions and the type of property. In many cases, deposits range from 5% to 20% of the property's purchase price.
How can you boost your deposit?
The more money you save for a deposit, the less you need to borrow and therefore repay with interest.
If you’re in a financial position to save money, then save as much as you can. Try calculating a monthly budget to work out what you can afford to save each month, then set up a standing order to transfer this money to your savings when you get paid.
Is there an option to increase mortgage payments if your financial circumstances change in the future?
Most mortgages offer a 10% overpayment facility on your current monthly repayments. If you exceed this amount, there is often a charge, known as an early repayment charge. The advantage of overpaying is that you will be able to pay off your mortgage balance quicker.
What schemes are available to help first-time buyers get on the property ladder?
The Low-cost Initiative for First Time Buyers (LIFT) scheme is a shared equity scheme which is available on properties on the open market. Buyers purchase an equity stake in the property of 60% to 90% and a modest deposit is normally required.
What fees are associated with getting a mortgage?
There can sometimes be an arrangement fee with different mortgage products which can be up to £2,000. You can often choose whether to pay the arrangement fee upfront or add it to your monthly repayments, however it’s worth noting that choosing the latter option means that you will pay interest on the fee. There may also be a fee if you use a financial adviser.
A Clearing House Automated Payment System (CHAPS) fee is also required to be paid and includes the lender’s costs for sending the mortgage funds to your solicitor to allow them to pay for the property on your behalf. You will also have to pay the conveyancing fees to the solicitor for looking after the property purchase.