One of the biggest challenges for most buyers is securing a mortgage deposit. Whether you’re a first-time buyer, a homeowner or a property investor, you’ll typically need to put down a deposit when buying a property. But one of the biggest questions home buyers have is how much you need for a mortgage deposit. In this mortgage deposit guide, we’ll explain how much deposit you need, how you can pay it and how it impacts your rates.
How much deposit do I need?
The amount of house mortgage deposit you’ll need to put down largely depends on your chosen mortgage product and the value of the property you wish to buy. Deposits are calculated as a percentage of the value of the property you are looking to buy. The maximum mortgage you can get is 95% Loan To Value (LTV), meaning you’ll need to put down a minimum mortgage deposit of 5%. However, many lenders ask for a deposit of at least 10%.
It’s always worth putting down as large a deposit as possible as this makes you appear less of a risk to potential lenders. With a larger deposit, you’ll have a better chance of being approved for a mortgage and access to better rates. It also means that you’ll need a smaller loan and your monthly repayments will be lower and accrue less interest.
What’s the average house mortgage deposit?
Where you are looking to buy a property will also affect how much of a mortgage deposit you need to save. For instance, homes in London, the South West and South East of England are typically more expensive than those in the Midlands and North of England. The higher the property value, the more of a deposit you’ll likely have to pay.
Mortgage deposits for first-time buyers
First-time UK buyers must save at least a 5% deposit of the property’s purchase price. In 2021, the average mortgage deposit for first-time buyers was £53,935. The most expensive region in the UK was Greater London, where buyers were required to put down a deposit of at least double that amount. Saving such a large amount of money can take years for many people. But there are ways you can reduce the size of the deposit you need to put down.
How to reduce how much mortgage deposit you need
Some lenders will approve 95% mortgages for first-time buyers. This means you’ll only have to fund a 5% mortgage deposit. Your parents or close family member can also give you the deposit as a loan or a gift. But, if it’s a loan that needs to be repaid, it may affect your mortgage eligibility, as many lenders only accept gifted deposits. You may also get help with your deposit through one of the government’s Help to Buy schemes, whether you are a first-time buyer or a previous property owner struggling to save up for a house mortgage deposit.
How much deposit do I need for a buy-to-let mortgage?
Lenders consider buy-to-let properties riskier investments, set their rates higher and typically require a larger deposit, usually between 25% and 40% of the property value. For example, suppose you are looking to buy a property for £300,000 and take out a buy-to-let mortgage at 75%. You’ll need a deposit of 25% of the property’s value, which is £75,000.
What’s a holding deposit and how is it different?
Rather than a mortgage deposit that goes to your lender, holding deposits are used to show the vendor that you’re serious about buying the property and prevent them from selling to anyone else. These deposits are usually around £500 to £1,000, but the seller and their solicitor determine the precise amount.
How to save for a mortgage deposit?
If you’re a first-time buyer and struggling to save for a mortgage deposit, here are some ideas to help you save up a big enough deposit:
- Return to live with your parents: Moving back with your parents is a great way to save up for a deposit as any rent you’ll pay will likely be much cheaper than private renting
- Get help from family members: Your parents or other relatives may be able to give you financial help towards a deposit in the form of a gift deposit. Alternatively, they can use their own property or savings as collateral against your mortgage.
- Help to Buy equity loan: This is a government scheme that helps you buy a new build home valued at up to £600,000 by lending you a certain percentage of its value. You can receive up to 40% if the property is in London or 20% if outside of London. Inside London, the maximum loan is £240,000 and £120,000 outside of the capital.
Choose Ayla Mortgages to secure your mortgage
A mortgage deposit is crucial in the mortgage approval and home-buying process. To find out more about how much of a deposit you need, speak to an adviser at Ayla Mortgages. We can also compare the best rates and help you find the right mortgage.