How much deposit do I need for a mortgage?
Most lenders ask for at least 5% deposit
A minimum of 15% is often needed for new build properties
But it's also possible to get a deposit-free mortgage in certain circumstances
Read on to find out more about deposit requirements and how Mojo can help you
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The size of deposit you need depends on the type of buyer you are, the type of mortgage you're looking for, and your personal circumstances. But as a bare minimum, typical mortgage lenders are likely to ask for a 5% deposit.
Usually you'll need to have a stable income and good credit history to qualify for a low deposit mortgage, however, it's perfectly possible to find find a first-time buyer mortgage with a 5% deposit.
What about for new builds?
If you're looking at a new build property, however, many lenders will require a larger deposit, usually around 15%. This may seem counter-intuitive given that a new property is typically in better repair. However, because the value of a new build falls more quickly and dramatically than an older property, lenders see them as a higher risk purchase.
Because of the higher deposit requirement, a lot of home builders offer certain incentives to customers buying a new home, such as a discount or cash bonus, which can be used to balance some of the additional deposit requirement.
Zero deposit mortgages
100% mortgages are not very common in today’s market, although there are a few products available that allow buyers to take out a mortgage without a deposit. The vast majority of these products are only available for those buyers who are assisted by parents or other family members, however.
There is one 0% deposit mortgage on the market aimed at renters, by Skipton Building Society. This product does not require any form of guarantee from a third party, so it’s great for those first-time buyers without wealthy relatives to help them.
Skipton’s track record mortgage uses proof of 12 month’s worth of prompt rental payments as an indication of your ability to maintain mortgage repayments. There are other criteria to meet, so reach out to Mojo if you feel that this may be a suitable product and we’ll run through the full details with you.
Family-assisted mortgages and guarantor mortgages
These are very similar mortgage products, both intended for those who struggle to raise a deposit for their first home, and those on lower incomes who struggle to meet mortgage affordability assessments.
There are various products of this type available from different lenders, and your mortgage adviser at Mojo can guide you through the options. If you’re looking at this type of mortgage option, it may be best to speak to your parents, or whomever you're planning to ask for help beforehand.
An illustrative example is Barclays' Family Springboard mortgage, where your parents or relatives provide a 10% deposit, which is held as security for five years. The money accrues interest over 5 years and upon reaching a certain level of equity in your home, the deposit along with the interest earned can be retrieved by those providing it.
5% Deposits (95% LTV mortgages)
Most banks are willing to lend up to 95% of the property's value without a guarantor. So it’s usually possible to get a mortgage with a 5% deposit.
However, 95% LTV is still seen as higher-risk lending, and therefore you’ll usually also need a strong credit record and ample proof of income.
It’s also important to consider that you’d get access to more competitive interest rates if you reduce your loan to value ratio with a larger deposit.
Why it’s best to save the largest deposit possible
While it can be frustrating to wait until you have a large deposit to buy your first home, there are some major benefits to doing so:
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Cheaper rates: Mortgage lenders use a risk assessment to decide whether or not to lend to customers, and those posing the least risk typically benefit from the most competitive mortgage interest rates. A large deposit reduces the risk in lending to you by lowering your LTV (loan to value). Lower interest rates mean you’ll pay less interest over the duration of the mortgage
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Less chance of negative equity: property value changes all the time, so it’s perfectly possible to buy a home for, say £250,000 and it only be worth £245,000 in a few months time. If you’ve taken out a 100% mortgage, this would mean you’d end up in negative equity - which is where you owe more than your home’s current value. This can be problematic when you want to remortgage or move home
25% Deposits (75% LTV mortgages)
25% is the average deposit size in the UK. This means that you’re investing in a quarter of the value of your property immediately. 75% LTV lending is considered much less risky, so you’ll likely get a much better interest rate than you would with a 5% or 10% deposit, for example.
Minimum buy-to-let deposit size
If you’re a landlord, or hoping to become one, 25% is also usually the minimum deposit size you’ll need to provide for a buy-to-let mortgage - which allows you to purchase rental properties.
Some lenders may require up to 40% deposit for investment property purchase, however, especially if you’re a portfolio landlord. However, it’s not unheard of to be offered 80% to 85% loan-to-value mortgages for buy-to-let properties.
This can help you to purchase investment properties sooner, however, keep in mind it will also push up the cost of the interest charged.
If you are contemplating a mortgage application and have concerns about potential economic changes in the coming weeks, our team of Mojo experts is available to provide mortgage advice, guidance and assistance tailored to your specific situation.
It’s possible, yes, if you can find a loan provider willing to lend for this purpose. Although most mortgage lenders won't be keen to accept this form of deposit.
They may be slightly more flexible if you only have to borrow money to top up your deposit, not in its entirety.
If you are able to find a mortgage lender willing, they will still consider you a high risk applicant, which will push up the interest rates they’re willing to offer you.
Most lenders will accept a deposit that’s been given as a gift. Although you’ll need that person providing it to sign a gifted declaration. This simply confirms to the mortgage lender confirming that it’s a gift, rather than a loan.
If inheritance tax law applies to the person gifting the deposit, they must survive for seven years after providing the gift. Otherwise it’s possible you’ll be liable for inheritance tax when they pass away.
If you’re under 40, The LISA (Lifetime ISA) savings account set up by the government can help speed up your deposit savings. They top up every deposit by 25%, up to a maximum of £1000 per year.
But that’s just the beginning. There are plenty of ways to save for a house deposit beyond putting away direct savings each month. In fact, we've compiled a list of 12 clever strategies to help you save for a house deposit more quickly.
This is more common in commercial borrowing and buy-to-let, but yes, there are lenders willing to accept a directors loan for a mortgage deposit.
It’s rare, but possible to do so for a residential purchase, but lenders usually want evidence that the money has been drawn out of the business, and relevant tax liabilities have been taken care of.
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