How Much Deposit Do I Need to Put Down to Buy My New Home?
Purchasing a home is one of the largest decisions, financially speaking, you’ll ever have to make, and the deposit is just the beginning. In the UK, a mortgage deposit is the initial amount that you pay towards the cost of the property you are purchasing. It is generally presented as a percentage of the value of your property and plays a key role in deciding how much you can borrow, what mortgage offers you are eligible for, and what interest rate you will be charged.
Whether you’re a first-time buyer or are moving up the housing ladder, knowing how much you need to save up will give you a true sense of your future plans. In this guide, we’re going to go over deposit requirements, what factors determine what amount you need and how you can get started on the road to owning a home.
Your home/property may be repossessed if you do not keep up repayments on a mortgage or other debt secured on it.
What Is a Mortgage Deposit?
A mortgage deposit is the term for the lump sum you put down when you buy a home the balance of the purchase price is typically borrowed by you, the homebuyer, from a mortgage lender. For example, if you are purchasing a £200,000 home and you have a 10% deposit, you will need to put down £20,000 and borrow the rest, £180,000, from a mortgage lender.
Your deposit is your equity contribution from day one. Typically, the more you deposit, the better the deal you get on the mortgage rates. That’s because lenders view bigger deposits as an indication of lower risk, and they frequently save their best deals for borrowers who have more to put down.
Most standard residential mortgages in the UK will require a deposit, although the amount will depend on the lender and your situation. If you want to be financially prepared and get a good deal on your new home, it’s important to understand how deposits work.
Minimum Deposit Requirements in the UK
In the UK, 5% of the value of the property is generally considered to be the minimum amount you can put down. But, how much cash you need to do so will depend on your lender, credit profile and whether you are eligible for any government schemes.
Here’s a breakdown of common deposit levels:
- 5% deposit (95% LTV): Some buyers, particularly first-timers, may be able to find this type of mortgage, albeit typically with higher interest rates and fewer mortgage choices. A small number of lenders tightened their criteria for 95 per cent mortgages in recent years.
- 10% deposit (90% LTV): A better reception from lenders as more are available and they offer slightly better rates.
- 15% deposit (85% LTV): This is likely to get you access to even more competitive deals and can have a significant impact in terms of the monthly repayments you make.
- 20%+ deposit (80% LTV or lower): You’ll generally receive the best interest rates available from the lender, because these applicants are less risky in the lender’s eyes.
Lenders look at the Loan-to-Value ratio (the percentage of the property price you’re borrowing) as a measure of risk. A lower LTV typically nets better mortgage terms.
Bear in mind that the need for deposits can be affected by market and inflationary conditions and economic uncertainty. Before determining how much you should put down, it’s also a good idea to read more about your options and even seek out the opinions of people who have expertise in the field.
MoneyHelper has more advice on mortgage deposits if you’re looking for additional information.
Deposit Requirements for First-Time Buyers
If you are a first-time buyer, you might have even more options to make saving for a deposit more realistic, thanks to government-backed schemes and financial products designed to help get people on the property ladder.
- Lifetime ISA (LISA): You can put away up to £4,000 a year in this, and the government will give a 25% bonus on these contributions. So you could get an additional £1,000 a year towards your deposit. Money must be used to purchase your first home (up to the value of £450,000) or in retirement.
- First Homes scheme: Gives local first-time buyers and key workers in England a 30% to 50% discount on new-build homes.
- Shared Ownership: This allows you to purchase a share of a property (usually between 25% and 75%) and pay rent on the rest. It reduces the amount of cash up front required.
- 95% Mortgage Guarantee Scheme: This initiative aims to incentivise lenders to provide mortgages with 95% loan-to-value to help first-time buyers with smaller deposits onto the housing ladder.
Each option has pros, cons, and eligibility criteria, so it’s essential to research what’s right for your situation.
You can get a good rundown of these schemes at NerdWallet’s guide to first-time buyers.
How Deposit Size Affects Your Mortgage
The amount of your deposit doesn’t just influence how much you need to save, it also has a big impact on your mortgage in a number of key ways.
- Interest rates: Lenders will provide their best interest rates to borrowers with higher deposits. You will typically secure more competitive deals if you can lay down 20% or more instead of 5% or 10%.
- Loan-to-Value (LTV) ratio: This represents the ratio of your loan amount to the value of the property. It’s a sign of lower risk for lenders, and that leads to better deals. An LTV that’s lower (80%, for example) is even better. The higher the LTV (for example, 95%) the higher your monthly repayment figures and the more limited your options.
- Affordability assessments: A larger deposit reduces the amount you require to borrow, and you might get through a lender’s affordability checks more easily if you are applying for less. It also acts as a buffer against swings in property values, mitigating the risk of ending up in negative equity.
- Mortgage term and flexibility: A smaller loan may enable you to pay off your mortgage faster or have access to lower-fee and more flexible products.
In other words, saving up for a larger deposit can dramatically decrease the overall cost of your mortgage and make your home more affordable both today and down the line.
Saving for Your Deposit
Saving for a deposit feels daunting, but it’s also definitely possible with the right approach. The key is to start early, stay consistent and set achievable goals.
Here are some tips to help:
- Set a savings target: Calculate a figure for how much you’ll need based on the property price you have in mind and the percentage you want to save.
- Create a budget: Keep track of what you earn and what you spend so you can work out where you can make savings. And even modest monthly savings can accumulate over time.
- Open a dedicated savings account: For example, a Lifetime ISA or regular saver account with a competitive interest rate to save into.
- Automate savings: Establish a monthly direct debit into your savings account so it doesn’t take effort to save, it just happens.
- Cut unnecessary expenses: Think subscriptions, dining out and discretionary spending. Every pound you save gets you one step closer to what you want.
The average deposit for a first-time buyer in the UK now stands at more than £50,000, according to figures from Halifax, although this figure varies by region. That only makes planning and persistence more critical. Source
Stay focused on your goal and keep in mind that there is support available that can give your savings a little kick along the way.
Additional Costs to Consider
Buying a home involves more than just a down payment. You’ll want to budget for the possible extra costs that could increase your final bill by thousands:
- Stamp Duty Land Tax (SDLT): This is payable on properties over £125,001 in England and Northern Ireland. First-time buyers get relief on homes up to £300,001. https://www.gov.uk/stamp-duty-land-tax/residential-property-rates
- Solicitor and conveyancing fees: Legal costs usually range from £500 to £1,500.
- Valuation and survey fees: Your lender may charge for a mortgage valuation, and it’s wise to pay for a more detailed property survey.
- Mortgage arrangement fees: Some lenders charge product or booking fees, typically between £500–£2,000.
- Moving costs: Don’t forget to factor in removals, storage, and furnishings.
These expenses can add up faster than you think if you’re not prepared for them, so factor them into your total budget. For a complete list of hidden charges, Which? is a great source.
How Mortgaged Can Help
At Mortgaged, we know how overwhelming buying a home especially for the first time can be. Which is why we’re here to help you make sense of it all. Our mortgage experts could analyse your circumstances, outline your deposit options and help find the most suitable mortgage rates available to you.
We have access to a broad spectrum of lenders and can help you get the most appropriate mortgage for you, whether that’s under a government scheme or simply an affordable offer that suits your long-term planning, all tailored to your individual circumstances.
Call us now at Mortgaged to find out how we can help get you one step closer to the home of your dreams!
Conclusion
A solid deposit is the foundation of your home-buying journey. For tailored guidance and help finding the right mortgage, get in touch with Mortgaged we’re here to help.
Your home/property may be repossessed if you do not keep up repayments on a mortgage or other debt secured on it. There may be a fee for mortgage advice. The precise amount will depend upon your circumstances and will be agreed with you before proceeding, but we estimate it will be £395.
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