How Much Deposit Do You Need For A Mortgage?
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How Much Deposit Do You Need For A Mortgage? (Part 1)
Charlie Connolly talks to us about mortgage deposits. Episode one of two, recorded in October 2024.
How much deposit do I need for a mortgage? What’s the average First Time Buyer deposit?
You normally need a deposit of 5% or 10% of the price of the home you’d like to buy.
The bigger your deposit, the less you need to borrow, and larger deposits also give you access to a wider range of mortgage deals or lower interest rates, which can help you save money in the long term. I’d say the average First Time Buyer puts around 5% to 10% in.
What does a bigger house deposit mean for my Loan to Value?
Loan to Value, or LTV, is basically the ratio of the money you need to borrow against the value of the house. It’s worked out as a percentage.
As an example, if you’re purchasing a home for £200,000 and you have £40,000, that’s a 20% deposit. Your LTV is 80% and you will need to borrow £160,000 to make up the purchase price.
A bigger house deposit means your LTV is lower. A lower LTV can give you access to a wider range of mortgage deals and lower interest rates. It also means less risk to the lenders if the property market drops.
How can I save for my deposit? How much should I aim for?
It depends on the purchase price you’re looking to reach. For example, if you’re looking at buying a £200,000 home, you need to aim to save at least £10,000 to £20,000.
In terms of how to save, I’m a bit of a geek when it comes to my finances. I have an income and expenditure spreadsheet and I project what my savings would be six to 12 months down the line. That means I know what my disposable income is each month. It gives you a better picture of what you’re able to save.
What’s the minimum deposit for a house? Can I get a mortgage with a 0% deposit?
Some lenders out there will go to 0%, but that’s a really restricted lender choice. Available 100% mortgage products include Family Assist, Skipton Building Society’s Track Record mortgage and a Family Springboard mortgage [podcast recorded in October 2024].
There might be some slight variations between each product, so it’s right to speak to an advisor to guide you on which would be more suitable for you.
Can I get a 100% mortgage?
Yes, potentially there are some lenders that consider a 100% mortgage. There are normally specific criteria with this type of mortgage, so it might be right to speak to an advisor.
We mentioned some of the products in the previous question with Family Assist, Skipton Building Society’s Track Record mortgage and the Family Springboard mortgage.
It would be right to speak to an advisor when it comes to these products, to see what would be most suitable for you.
Can you buy a house with a 5% deposit? How much can I borrow with a 5% mortgage deposit?
Yes, you can buy a house with a 5% deposit. Normally you can borrow around 4.5 times your income with a 5% deposit, but ultimately that can change depending on your income and expenditure.
Can I get a mortgage with a 10% deposit?
Yes, this is the most common deposit amount for First Time Buyers. It gives you a good number of mortgage deals and products to choose from.
Will I need another deposit when moving house?
Not necessarily. When you come to move house, your equity in the property is basically used as a deposit.
If you were to sell your existing property for £200,000 and you have £100,000 remaining on your existing mortgage, you have £100,000 equity in that property to use as a deposit on your next purchase.
If you have savings, you might choose to put those towards the deposit as well, but ultimately you can just use that equity.
Who do I pay my mortgage deposit to?
You pay your deposit to the solicitor when exchanging contracts. Once completion is near, they will request funds from the mortgage lender and legally complete the purchase between the buyer and the seller.
Can my parents contribute towards my deposit? Should I borrow money from my family for a bigger deposit?
Yes, your parents are able to contribute towards your deposit – it’s classed as a ‘gifted deposit’. You’re also allowed to borrow money from your family for a bigger deposit.
If you’re borrowing money and making monthly payments back to your family, that may be factored into how much you could borrow on your mortgage. That’s the main thing to bear in mind when borrowing from family.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP WITH YOUR MORTGAGE REPAYMENTS.
Speak To an Expert
How Much Deposit Do You Need For A Mortgage? (Part 2)
We continue the conversation on mortgage deposits with Charlie Connolly, in episode two of our podcast.
Can I use a loan for my mortgage deposit?
Yes, a couple of lenders are able to consider this. However, the loan is then taken into account for affordability, so it can impact the amount of money you’re able to borrow.
Can I use my Help to Buy ISA for my deposit? Is this still relevant as of October 2024?
Yes, you’re still able to use your help to buy ISAs as a deposit. However, they are no longer available for new customers. In fact I currently have a First Time Buyer who is looking to use their Help to Buy ISA as a deposit.
Your solicitor or conveyancer will apply for the extra 25% and you do not have to pay it back.
It’s also worth mentioning that the maximum purchase price to gain your 25% bonus is £250,000, or up to £450,000 if you buy in London.
The lifetime ISA is similar to the Help to Buy ISA, and you’re still able to take one of these out and save up to £4,000 per year. A 25% bonus will apply when you use your funds as a deposit, as long as you’re a First Time Buyer; the property costs £450,000 or less and you buy the property at least 12 months after you make your first payment into the lifetime ISA.
You must use a conveyancer or solicitor to act for you for the purchase and you must buy with a mortgage.
Will a bad credit score mean I need a larger deposit?
Potentially, yes, a bad credit score could mean you need a larger deposit. When a larger deposit is put down, lenders see it as less risk. Some may be able to consider this and be more lenient on the credit scoring criteria.
Can you get a mortgage without a deposit?
Yes, there are some new 100% mortgage products that have recently become available. It might be right to speak to your mortgage broker – they can explore these options for you as they tend to have quite strict criteria. We need to check if you’re eligible for those.
As we briefly mentioned in the first podcast, examples of these products are the 100% Family Assist, Skipton Building Society Track Record and the Family Springboard Mortgage.
What size deposit is needed for Buy to Let mortgages?
Generally you need a minimum of 25% for a Buy to Let mortgage, but ultimately that will depend on the rental income the property can achieve. In some cases, the rental yield may be lower than what’s required to put down a 25% deposit, and you may need to put down more.
What is Shared Ownership and what deposit do I need for it?
Shared Ownership is a government scheme where you can buy a certain percentage of a property and pay rent on the rest. This scheme is only available on certain types of properties.
We do have lenders for this scheme who offer up to 100% lending, so no deposit is required.
What is Deposit Unlock and what deposit do I need for it?
Deposit Unlock is another scheme where you buy a new build property from certain builders. They have to be a member of the scheme, in which case you could buy a home with a 5% deposit.
How can a mortgage broker help? Have you got anything else to add?
As mortgage brokers we can look at your options based on putting down different deposit amounts. We’ll look at your circumstances and recommend the most suitable mortgage for you and your specific circumstances.
YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.
MOST BUY TO LET MORTGAGES ARE NOT REGULATED BY THE FINANCIAL CONDUCT AUTHORITY.