How Much Deposit Do I Need To Buy A Home?
6th July 2017
There’s no set amount of money you need for a deposit to buy a home. Most often it depends on your personal circumstances and the property you’re buying. However, most lenders will require at least 5% of the property’s value as a deposit. The more you can put down upfront, the greater access you’ll have to the most competitive mortgage deals.
Loan to Value (LTV)
The amount you’ll need to borrow in relation to the value of your home is called the Loan to Value (LTV). For example, if your deposit is 5%, your LTV is 95%; if your deposit is 20%, your LTV is 80%.
In the past, it was hard to get a LTV of 95% - lenders rarely lent to anyone with less than a 20% deposit. Today more lenders are willing to lend to people with lower deposits but who are otherwise eligible for a mortgage.
Using a mortgage broker is recommended if you have a smaller deposit to help you secure a suitable deal, since the pool of lenders willing to lend could be reduced.
Deposits for the most competitive mortgage deals
A larger deposit and therefore a lower LTV gives you access to a larger number of mortgage deals at lower rates. This is because lenders see you as lower risk.
A larger deposit can also save you money over the duration of your mortgage term, as you’ll be able to lock in a lower interest rate. This means you’ll have less interest to pay over the term of the loan, which could save you thousands.
If you can, it’s usually worth putting more into your deposit to lower the amount you’ll need to pay back, therefore reducing the amount of interest you pay.
Help with a smaller deposit
The most competitive mortgage deals are reserved for those with the largest deposits, sometimes of up to 40%.
First-time buyers who may be struggling to save up a large deposit have a few alternative options available to help buy a home.
Help to buy
There is help available for those struggling to save up for a larger deposit. The government’s Help to Buy scheme gives a boost for first-time buyers saving up for a deposit.
Pay a maximum of £3,000 a month into the ISA and you’ll receive a government bonus when you put down your deposit, although there’s certain eligibility criteria to be met: the property must be a new build, and can’t be worth more than £250,000.
Note: We’re working towards supporting government schemes including Help to Buy, but are unable to provide this service just yet. For now, we’re focusing on one thing at a time in our effort to deliver the best possible mortgage experience for everyone. Follow us on Facebook, LinkedIn, or Twitter to be the first to know when we support this service.
Shared ownership can offer an alternative if you have a small deposit and are struggling to find a mortgage. Shared ownership gives you the opportunity to own a part of your home - you buy a share of the property and pay reduced rent on the remainder at a discounted rate.
To be eligible for shared ownership, your household income must be less than £60,000. Most people who opt for shared ownership are first-time buyers, but you’ll be eligible for the scheme if you’ve previously owned a home but can’t afford to buy now. You’ll also be eligible if you’re renting from the council or living in a housing association property.
Note: We’re working towards supporting government schemes including Shared Ownership, but are unable to provide this service just yet. For now, we’re focusing on one thing at a time in our effort to deliver the best possible mortgage experience for everyone. Follow us on Facebook, LinkedIn, or Twitter to be the first to know when we support this service.
Bank of Mum and Dad
Not everyone is fortunate enough to rely on their parents or family for help with a deposit, but the stories of parents stepping in to help their children get on the property ladder are becoming more common. As the average price of a home in the UK rises above 10 times the average salary, the ‘Bank of Mum and Dad’ is expected to lend over £6.5 billion this year.
Some lenders have mortgage deals tailored for those with lower deposits. If you have a deposit of less than 10% a mortgage adviser is crucial in helping you secure a mortgage. Your adviser will know the lenders to approach that are most likely to accept your application.