If you’re looking to buy a home with a small deposit mortgage, now is not the time to be house hunting, according to Martin Lewis.
On This Morning, the money guru shared his wisdom with a caller who was looking to buy a first home with her partner. Even though they’d been able to save up a 5 per cent deposit, Martin Lewis warned against buying a home at the moment.
‘Well I think this will be a tricky time to be buying a house,’ says Martin Lewis. He explained that while the UK interest rates are very cheap at the moment – ‘0.1 per cent, the lowest in 325 years!’ – this comes with a caveat.
‘To get a mortgage now, you need to have a bigger deposit. Or if you’re remortgaging, you need to have more equity in the property. This is quite simply because we have to factor in that nobody knows what’s happening to house prices,’ he explains.
‘If house prices plummet, then the lenders want more security that if the house price drops, they’re not exposed too much because you’ve got a very small deposit,’ the presenter adds. ‘So getting decent mortgages on a small deposit is tough right now.’
However, even ignoring the current circumstances, the savings expert advises against buying a house with just a 5 per cent deposit.
‘I need to be honest with you, I have always pushed people to have a 10 per cent deposit, not a 5 per cent deposit,’ he told the caller. ‘Mortgage rates get far, far cheaper every five per cent you drop. And the biggest point it gets cheaper is going from 5 per cent to 10 per cent.’
If you are looking to buy a house with a small deposit at the moment. Martin recommends speaking to a fee-free mortgage broker and possibly taking a look at the market, but holding off until you have at least a 10 per cent deposit.
‘Obviously, it’s worth waiting at the moment if you haven’t made a decision,’ he explains. ‘See what’s going to happen to house prices. There’s a possibility they come down. Not a prediction – just a possibility.
‘You may be a lot better off waiting a year and building up to a 10 per cent deposit, so the mortgage is cheaper, and the house prices might be cheaper too.’
‘I can’t tell you what to do, but I wouldn’t be in a rush to be buying right now,’ Martin concludes.