Deposit - What does it mean?

15 November 2022

Here, we discuss 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 remaining balance. 

What are the benefits of a bigger deposit?

The bigger your deposit, the smaller your loan and monthly repayments will be. Plus, as the deposit size increased, the interest rates available tend to come down as it is less of a risk for mortgage lenders.

Your property agent and mortgage adviser can give you advice when it comes to your budget, and give you up to date information on the current property market.

How can you boost your deposit?

The more you save for your deposit, the less you must borrow and therefore repay with interest.

If you are in a good position financially, save as much as you can for your deposit. 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 into your savings when you are paid. 

Can you increase your 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 more quickly.

What are the various schemes available to help first-time buyers get on the property ladder?

Low-cost Initiative for First Time Buyers (LIFT) 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 are the fees associated with getting a mortgage?

There can sometimes be an arrangement fee with different mortgage products which can be up to £2000. You can often choose whether to pay the arrangement fee upfront or add it to your monthly repayments, however it’s worth remembering that choosing the latter option means that you will pay interest on the fee. There may also be a fee if you choose to use a financial adviser.

A Clearing House Automated Payment System (CHAPS) fee is also required to be paid which 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.