5 Percent Deposit Mortgage Scotland

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5 Percent Deposit Mortgage Scotland

Carolyn talks about getting a mortgage with a 5% deposit when buying a home in Scotland.

Can you get a mortgage in Scotland with a 5% deposit?

Yes, you absolutely can. A nice simple answer to that one.

Is it easier to get a mortgage with a 5% deposit in Scotland?

It’s relatively easy to get 5% a deposit mortgage in Scotland, but it’s the same across the UK. It doesn’t really matter if you’re in England, Wales or Scotland – the process and the criteria are the same.

How can I get a mortgage in Scotland with a 5% deposit? What’s the process?

The process is much the same for any mortgage, regardless of your deposit. Where it does differ is that lenders’ credit scoring tends to be a bit tougher.

When lenders will look at your credit profile they are of course looking to see if you’ve got bad debt or adverse credit, missed payments, things like that. When you’re looking at putting down a 5% deposit, they’re a little bit more picky. They will want to see that you’ve got a good credit rating and you have managed any credit responsibly.

They like to see that you’re on the voters’ roll at your address. It does help if you’ve not moved around too much. That’s often a challenge, because 5% deposit mortgages tend to be used by First Time Buyers who may have moved around a bit. It’s helpful if you’ve got a consistent address history.

What government schemes are available in Scotland when acquiring a mortgage with a 5% deposit?

There’s been quite a lot of change in this of late. At the moment there are no specific schemes running. Just after Covid and lockdown, when 5% deposits were not really on the market, the government put a bond in place for lenders.

It meant that the government would underwrite an additional 5% of the borrowing, so that if somebody took a 95% mortgage and defaulted on it, the lender would receive that 5% from the government. To the lender, it then became the same as a 90% mortgage.

Most lenders have since moved away from that bond scheme, although there’s still a few using it. Everything happens in the background, so clients are reasonably unaware. It just means that there are lots of options to put a 5% deposit down to buy a home.

Which lenders provide 5% deposit mortgages in Scotland?

Most lenders have a 95% product range, although sometimes their criteria varies. Some won’t be particularly keen to lend 95% on flats, for example. It’s also quite difficult if you’re looking at new build properties with only a 5% deposit. It’s difficult, but not impossible. But the vast majority of lenders do have a product available.

How do I qualify for a 5% deposit?

A lot of it comes down to this credit profiling. Much the same as for any mortgage, they’ll want to look at your affordability and overall credit commitments such as credit cards and personal loans. Even things that are on interest-free credit, and Klarna purchases, will be taken into consideration.

If you’ve got any children or other people who are financially dependent on you, that will be a factor, and lenders will also consider your age. So the big difference between a 5% deposit and any other level of deposit is the credit profiling.

What is the benefit of a 5% deposit for First Time Buyers and home movers?

The great advantage is that you can consider buying your first home or your next home with a relatively small amount of cash. That can be very useful, particularly for people who have been renting, as rents are very high at the moment. That can make it difficult to save even a 5% deposit, let alone 10% or more.

It might also be useful for home movers. Perhaps they’re moving into a property that needs a lot of work. If you have equity in the property you’re selling but want to keep some of that back to do home improvements, a low deposit is helpful.

So it’s good if there are limited cash reserves, or you’ve got another purpose for your money.

How does the 5% deposit Mortgage Guarantee Scheme work in Scotland?

It’s the same thing we mentioned earlier. It’s a government scheme across the UK that works in the background. The vast majority of lenders have moved away from that now, but essentially, the government put a bond in place to give lenders confidence to lend at that 95% level.

What credit score is needed for a 5% deposit mortgage?

I often get asked this, as a lot of people monitor their credit profile using an online source like Experian, Clearscore or Checkmyfile that provides them with a score. They’ll tell me that they have 900 out of 1000, or whatever. But that score is absolutely irrelevant to the lender. They don’t consider that.

What they do look at is all the building blocks of your credit profile. Overall, they don’t want you to have too much credit and for you to have maintained all your credit payments.

They also don’t like to see you sitting at 95% of your overall credit card limit. Again, being on the voters’ roll is important, and so is having a consistent address history. All of those things will go into how a lender views your credit record, rather than any particular number.

If you’ve got a very low score, perhaps because you’ve been bankrupt, you’ve missed multiple payments or you have a lot of debt, there’s a good chance you’re not going to be approved. Similarly, if you’ve got a very high score, there’s a good chance you will be approved – but neither of those things is a guarantee.

How can a mortgage broker help when it comes to 5% deposits?

A mortgage advisor is particularly useful when you’re trying to secure this level of funding. Those considerations lenders have for credit profiling are unique to each of them. Every mortgage lender has their own unique personality.

If you’ve been declined by one lender, it doesn’t necessarily mean that you’ll be declined by another. Mortgage advisors looking at your circumstances will know which lender is most likely to approve you from the outset.

We also look at which lender is offering the best deal for your circumstances at that 95% level. We can help you shop around in a way that’s not damaging to your credit profile.

Having a mortgage advisor on your team when trying to secure this kind of funding is absolutely invaluable.