Just like any buyer looking to secure a mortgage, saving an adequate deposit for your police mortgage is one of the biggest hurdles to overcome. With deposit requirements often being 15% or 20%, this can put the property you’re looking to buy far out of your reach. As you work in the police force, however, many lenders are more flexible and willing to accept a 5% deposit. This can still be a hard amount to save. There are ways to boost your deposit fund, though, to help you reach your goal sooner.
What is a police mortgage?
The mortgage loans available for police officers and staff are actually the same as those offered to everyone else. Your profession, however, goes in your favour with lenders. This is because it’s a respected career and one that you tend to have for the long term. Lenders deem you to be less of a risk because of this. As a result, they are generally more flexible with their lending criteria.
The size of your deposit
As mentioned above, there are lenders who are prepared to offer mortgages with a 95% loan-to-value (LTV) ratio, meaning you only have to pay a 5% deposit. The loan-to-value ratio refers to the percentage of the property value that you are borrowing for your mortgage. To buy a property in Bexleyheath for £200,000 with a 95% LTV mortgage, for example, you need a 5% deposit of £10,000.
Just bear in mind that such a high LTV can limit the mortgage options offered to you. You’ll probably pay a higher interest rate than you would with a lower LTV mortgage. This means you’ll eventually pay more over the mortgage term than with a lower rate.
Get better rates with a bigger deposit
The more deposit you can pay, the more deals will become available to you and these will have more competitive rates. Mortgage rates fall into different LTV bands. The lower the LTV – meaning you’ve paid a higher deposit – the lower the rates you are offered. These bands tend to be set at LTVs of 90%, 80%, 75% and 60%.
With a 10% deposit, you can benefit from a cheaper rate than a mortgage obtained with a 5% deposit. If you can pay a 20% deposit, you’ll be offered much better rates while a deposit of 25% will provide you with even more competitive rates. The best rates are offered when you can pay a 40% deposit and only need to borrow 60% of the property value.
Boost your deposit
You may have savings to use as your deposit but they’re not quite enough to meet the amount you need. To boost the amount, you can benefit from a government bonus if you open a Lifetime ISA. Alternatively, you can pool your savings if you buy a property with someone else.
Save with a Lifetime ISA
If you’re aged between 18 and 40 years old, you can increase your savings effectively with a Lifetime ISA (LISA). This account is designed to help you buy your first home or to have extra funds available for your retirement. It allows you to save up to £4,000 per tax year and the government will give you a 25% bonus on top of this. You’re not taxed on the interest earned on your savings or the government bonus. The maximum bonus you can receive from the government is £32,000. You can earn interest on this as well as your savings.
Your LISA is flexible in that you can save set monthly amounts, transfer lump sums into it and also transfer funds from another ISA. Funds transferred from another ISA also become eligible for the government bonus.
Get a joint mortgage
You can take out a joint mortgage with someone else, pooling your savings together to reach your deposit goal faster. Splitting the deposit requirement between two of you can drastically reduce the amount you need to save on your own. With a joint mortgage, you’ll both be named on the mortgage and the deeds. Your combined incomes will be taken into account by the lender and you’ll be jointly liable for the mortgage repayments.
You don’t actually have to live with someone else to benefit from a joint mortgage. Your parent, for example, can boost your mortgage options using their income and savings to help you get onto the property ladder. Despite not living with you in your new home in Bexley, for example, they’re still jointly liable for the mortgage. They may also incur a second property stamp duty surcharge if they’re already a homeowner.
What to do if you don’t have a deposit
If you haven’t been able to save a deposit at all, there are a couple of options that may help you. Many first-time buyers look to family members or close friends to help them step onto the property ladder. One possibility is receiving a gifted deposit or you may be able to secure a guarantor mortgage.
A gifted deposit
As its name suggests, the deposit is given to you, usually by a family member or close friend, to help you buy your new home. If you’re lucky enough to receive a gifted deposit, you’ll need to get confirmation from the person giving it to you that it is a gift rather than a loan. This confirms to the lender that they understand the money cannot be claimed back and they won’t have any rights concerning the property.
A guarantor mortgage
With a guarantor mortgage, a family member or close friend agrees to make your mortgage repayments if you’re unable to. Your guarantor will need to sign a legal agreement to this effect and provide some form of security. He or she won’t be on the deeds, however, or own any of your property. As long as you keep up with your mortgage repayments, your guarantor won’t need to do anything. Should you fail to maintain the repayments, though, your guarantor will be liable for them.
If you don’t have a deposit but are confident that you can afford the monthly repayments, it’s worth asking a relative or close friend if they’ll consider being your guarantor.
Get help with your police mortgage from a government-backed scheme
Various schemes are available to help you buy a property with a low deposit. Whether you’re looking to buy a home in Kent, London or Edinburgh, your mortgage broker can advise you on these schemes. They can help you to decide which one is best suited to your needs. When applying for Welling or Pimlico mortgages, consider taking advantage of the Help to Buy shared ownership or equity loan schemes, the Right to Buy or Right to Acquire schemes, the 95% mortgage guarantee scheme or the First Homes scheme.