Tag Archives: home

Buying a house without a large deposit

The financial crisis of 2008 hit almost everyone, especially home owners and house buyers. For those people wanting to buy a house suddenly a figure of 30% was conjured up out of nowhere to be a suitable deposit when buying a house.

Suddenly, my clients around Manchester, Liverpool and Chester were being asked to find £60,000 as a deposit for a modest £200,000 property. The effect his had was to kill the housing market as no one could afford to buy a house anymore unless they had a substantial amount of money behind them.

With house prices currently falling (see this Telegraph article), the number of people who have bought houses with only a 5% deposit has hit it’s height.

To clarify, a 5% deposit means that instead of a £60,000 (20% deposit) on a £200,000 house, buyers would only need to raise a far more modest £10,000 deposit. This is obviously great for home buyers, but when house prices start to fall, so does the equity of your house.

Let’s say you bought a £200,000 house when you moved from Manchester to Chester and you paid a 5% deposit of £10,000. Now imagine you’ve lived in that house for 2 years but it’s now worth only £150,000. In two years, you’ve probably paid off somewhere in the region of £8,000 from your mortgage of £190,000, but your house is now only worth £150,000, so in real terms you’ve lost almost £40,000.

House prices and equity values are just one of the things home buyers need to consider when spending large amounts of money on a house. The lesson: Be diligent and research well !