First time buyer

How to Finance a Property with Small Savings

 July 31, 2020

By  sterlingcapitalgroup

Property investment can be a great way to generate a regular income or cut down on expenses. Most homebuyers invest in properties for their personal use, but there are an increasing number of investors who buy properties and let them out to tenants and businesses to get a reasonable cash flow that pays the mortgage.

In this blog, we will look at ways to arrange finance for purchasing a property, even if you are low on savings.

Residential Property Mortgages

Conventional property mortgages through private lenders may be the best option for new home buyers. These loans are relatively easy to acquire at a moderate rate of interest. You can apply for a loan from 50k to 1m based on your needs, income and credit score.

The loan can be used to purchase your first home or refinance your property based on its current market value. Borrowers may be able to get loans with just a 10% down payment for a property that they are looking to occupy themselves.

Commercial Property Mortgages

More experienced investors may consider getting a commercial loan to finance their property. Don’t let the name confuse you. These loans are not meant for commercial properties like shopping centers or high street stores. They’re loans for residential properties that will be leased out to tenants or flipped after remodeling.

Commercial property mortgages are generally taken out by seasoned investors who have multiple properties in their portfolio. These loans are designed for landlords and property renovation businesses. The investors buy properties in need of repairs, fix them up and flip them back or rent out to tenants.

If you are looking to get a commercial mortgage to invest in a property for leasing it out, you may be required to pay a higher down payment. The interest rate may also be slightly higher.

Help to Buy Scheme

This is a UK government scheme and aimed at supporting home buyers with a small deposit. It is only valid for properties in England. The scheme is available to first-time buyers and existing homeowners who want to buy a ‘new build’ house.

The maximum purchase price of the property must be £600,000. Borrowers can get 20% of the purchase price interest-free for the first five years as long as they pay at least a 5% deposit. The rest of the amount can be financed through a private lender.

If you live in London, you can borrow up to 40% of the purchase price from the government. The scheme is strictly applicable to first-time buyers purchasing newly built homes for their own occupancy.

Shared Ownership Mortgages

Shared ownership applies when you are renting a property from a landlord and want to buy a share of the home. The landlord must be a public organization such as a local council or a housing association.

You must appraise a fair value of the home and then arrange a mortgage to pay for your share. You can purchase a share anywhere between a quarter and three-quarters of the home’s full value.

You then pay a reduced rent on the share that you don’t own. Later you can choose to buy a bigger share in the property up to 100% of its value.

How Much Down Payment Do You Need?

A down payment is the amount of money that you will need to pay out of your pocket. Properties that are invested 100% on loans are very risky for lenders, and most lenders avoid financing such properties.

The down payment ensures lenders that you are also invested in the property and won’t default on your payment. If you fail to meet mortgage payment obligations at any time, the lender can simply repossess the property and sell it at a slightly lower price than the market value to quickly get their capital back.

20% is a reasonable benchmark for a down payment. If you agree to pay 20% of the property value as down payment, your loan application is more likely to get approved. Your lender may also feel confident enough to forego mortgage insurance, which will lower your monthly cost.

Paying a higher percentage in down payment is more likely to get you approved and can even give you a lower interest rate. Paying less than 10% is an option but interest rates will be higher.

Importance of Credit Score

If you are looking to finance a property on a mortgage, your credit score is very important in the calculations. It is one of the first things that mortgage lenders and government loan programs consider for your eligibility.

The credit score tells potential lenders about your history of clearing payments on time and how responsible you have been as a borrower. A lower credit score can disqualify your application even if you have a good income and willing to commit a higher down payment. It can also raise your interest rate because creditors see you as a risky proposition.

A better credit score can qualify you for a higher loan amount and also reduces your interest rate. A good score can qualify you for a mortgage, even if you put down a small down payment.

If you are not sure about your credit score and loan opportunities, get in touch with a mortgage broker. They can find out which loan programs and lenders you can qualify for with your score.


Property values in the UK have been rising in the last 10 years. This has made it difficult for many people to buy their first home. Thankfully, there are many government support schemes and private mortgage lenders that can help invest in a property even if you can only afford to make a small down payment.

In this blog, we considered some of the main mortgage options, government schemes, and important factors that can help you qualify for a mortgage loan. To find out more, please get in touch today 0207 822 2390.


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