How much deposit do you need for a mortgage?

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Home » First Time Buyer » How much deposit do you need for a mortgage?

How much deposit do you need for a mortgage? (Part 1)

Sam talks to us about mortgage deposits in part one of two episodes, recorded in May 2024.

What is a mortgage deposit and how does this work?

A deposit is the amount of money you will be contributing towards your house purchase. When buying a house, you’ll need a personal deposit contribution and then you’ll take out a mortgage to finance the rest.

You would need to have proof of your deposit when applying for a mortgage, but you wouldn’t usually need to actually pay your deposit until you exchange contracts on the purchase.

How much deposit do I need for a mortgage and how much deposit should I save?

In general, you’re going to need a minimum of a 5% personal deposit for a residential purchase and at least a 20% deposit for a Buy to Let purchase. However, some mortgage lenders do at the moment have products which, on paper, will allow a deposit as low as 1% for First Time Buyers.

However, the lending criteria and the credit check for that is quite strict and not everyone will qualify. Depending on the applicant’s credit history and the type of property they’re looking to buy, the deposit may need to be increased.

We would be able to advise exactly how much someone’s going to need to put down.

What does a bigger house deposit mean for my Loan to Value LTV? What does LTV mean?

LTV stands for Loan to Value, which is the percentage of the purchase price that you are mortgaging.

For example, if you’re buying a house at £100,000 and you take a £60,000 mortgage, this is a 60% LTV. A lower LTV means a higher deposit, where you’ll generally get a lower interest rate and potentially less fees.

How can I save for a deposit? Have you got any tips?

If you’re just starting out, we would recommend opening a Lifetime ISA and saving up to £4,000 each year towards a deposit. Any interest you earn on that is going to be tax-free.

The government will then add a 25% bonus to your savings, as well, up to a maximum of £1,000 a year. That’s a really good way for First Time Buyers to save up for a house deposit.

Can I get a mortgage with a 0% deposit? What’s the minimum deposit for a house?
Generally speaking, the minimum deposit is 5%, but there are some mortgage lenders who offer a 1% deposit mortgage.

You can also purchase a property via the shared ownership scheme with a 0% deposit, but only specifically when purchasing a shared ownership house.

Can you buy a house with a 5% deposit? How much can I borrow with a 5% mortgage deposit?

The majority of mortgage lenders need you to put down at least 5% deposit – but this is subject to the type of property and the client’s credit history. For example, if a client has had any defaults or CCJs, they may need to put down a higher deposit.

Can you get a mortgage with a 10% deposit?

Yes – it works exactly the same as getting a mortgage with a 5% deposit: it’s the same process. But if you put a 10% deposit down, you’re going to benefit from a slightly lower interest rate.

Will I need another deposit when moving house?

You will need a deposit for your onward purchase if you are moving house, but this would usually come from the equity from selling your existing house. You wouldn’t physically need to have money in savings for your deposit – it would come from your equity.

Who do I pay my mortgage deposit to?

Prior to exchanging contracts on your purchase, your solicitor will send you a completion statement which will tell you exactly how much you need to send to your solicitor.

It usually has the solicitor’s final bill and the outstanding deposit amount. You send that to your solicitor and then once they’ve got that money in, they’ll be able to exchange contracts on your purchase.

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.

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Everyone’s different. You might be self-employed. You might have some credit history issues – whatever your situation, we will find the most suitable product available to you from across the whole market.

How Much Deposit Do You Need For A Mortgage? (Part 2)

James Bull is here to continue the conversation on deposits. Episode two of two, recorded in June 2024.

Can my parents contribute towards my deposit? Should I borrow money from my family for a bigger deposit?

Yes, parents – or any other close family member – could contribute towards your deposit. If you’re borrowing money with monthly payments back to your family, that could be factored into how much you could borrow on your mortgage. That’s the main thing to bear in mind if you are borrowing money.

Can I use a loan for my mortgage deposit?

Yes, you could, but the number of lenders that will accept a loan as a deposit is extremely limited. The ones that do accept it will factor the loan repayments into how much you could borrow on the mortgage.

Can I use my Help to Buy ISA for my deposit?

Yes – it’s still relevant, because although you can’t open help to buy ISAs any more, some people out there still have them. So for those people, yes, you could still use that money towards your deposit as normal.

Will a bad credit score mean I need a larger deposit?

Ultimately it will depend on your individual circumstances. If you do have credit issues, contact us. We’ll review your credit report and your personal circumstances, and on that basis we’ll tell you how much deposit you’re going to need.

Can you get a mortgage without a deposit?

Yes, there are some new products that have recently come out that could allow this. One lender is now offering 100% mortgages, and another is offering a mortgage with a £5,000 deposit.

On top of that, there’s the shared ownership scheme where quite a few lenders offer 100% mortgages as well [podcast recorded in June 2024].

What size deposit is needed for Buy to Let mortgages?

Generally the minimum is 25%, but ultimately the amount of deposit will depend on the rental income that an individual property may achieve. If the rental yield is quite low, you may need to put down more than 25% in some cases.

What is Shared Ownership and what deposit do I need for it?

Shared ownership is a government scheme where you could buy a certain percentage of a property. You pay rent on the rest of the house that you don’t own. This scheme is only available on certain properties.

In terms of your deposit, we do have lenders for this scheme who offer 100% lending, where no deposit is required.

What is Deposit Unlock and what deposit do I need for it?

Deposit Unlock is a scheme where you could buy a new build property from certain builders that are members of the scheme. You could buy those properties with a 5% deposit.

How can a mortgage broker help me understand what deposit I need?

As mortgage brokers, we take all the client’s circumstances into consideration, including the amount and source of your deposit. Based on that, we’ll recommend the right mortgage for your specific situation.