How Deposit Do I Need?
How much I can deposit do I need?
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When it comes to putting down a deposit to buy a property, the more you can save up, the better.
Your mortgage deposit will normally need to be for at least 5% of the value of the property you are buying. So, for example, if you want to buy a home costing £250,000, you’d need to save up a minimum deposit of £12,500.
Ideally, however, you should aim to save more than 5%, as the bigger the deposit you can build up, the wider your choice of mortgage options will be. You’ll also benefit from lower and often better mortgage rates.
That’s because lenders consider homebuyers with bigger mortgage deposits as lower risk than those with only a small amount to put down, so if you can afford to save up 10%, 15% or 20%, you’ll find you have access to more mortgages at better rates.
Lenders’ very best deals are usually reserved for people with either a 35% or 40% deposit, or the equivalent of equity if they are an existing homeowner looking to remortgage.
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Buying your first home can be one of the most exciting times of your life's but also complicated and stressful at times. So at Alliance Mortgages we will make sure to make it easier for you.
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Can I get a mortgage without a deposit?
Before the global financial crisis of 2008, several lenders offered 100% mortgage deals, which didn’t require any deposit.
Since then, however, they’ve become much more cautious, so you’re unlikely to find zero deposit mortgages. The lowest deposit mortgages are usually 95% deals which mean you need to put down a 5% deposit. Some lenders do offer mortgages up to 100%, but only if parents or family members can provide additional cash or equity as security.
Gifted deposit mortgages
Many first-time buyers rely on the ‘Bank of Mum and Dad’ to gift them a deposit to get a mortgage.
If you are buying a home using a gifted deposit, the lender may require confirmation that the person gifting the money is aware that they will not have any claim on the property, and that they do not expect their money back.
Although lenders are usually happy for family to gift deposits, they may be more reluctant to lend if the gift has come from a friend.
Help to Buy deposits
If you’re buying a new build property through the Government’s Help to Buy equity loan scheme, you need to put down a 5% deposit. The government will lend you a further 20% of the property price interest-free for the first five years, so you’ll only need a mortgage for 75% of the buying price.
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Buy to let mortgage deposits
If you want to buy a property to let out, you’ll need to save up a bigger deposit than you would if you were buying a property to live in.
You’ll usually need a buy to let mortgage deposit of at least 25% of the property value, and as with residential mortgages, the larger the deposit you can afford to put down, the more mortgage deals you will have available to you.
Advantages of bigger mortgage deposits
Having a larger deposit can also make things easier in terms of affordability, as it will mean smaller monthly mortgage payments.
Lenders will usually work out how big a mortgage they are prepared to offer you based on a multiple of your income, as they need to be certain you’ll be able to keep up with your monthly mortgage payments. They’ll also look at your outgoings and any other debts you might have.
For example, if you earn £30,000 a year, they might agree to lend you three or four times your income, so from around £90,000 up to £120,000. If you want to buy a property costing £160,000, you’d therefore need to save a deposit of at least £40,000 to be in with a chance of securing the property you want.
If you can’t afford to save up more than 5% of the property value, however, don’t despair. There are several lenders who are prepared to offer 95% mortgages, so there should still be options available to you. Seek mortgage advice if you’re not sure which deal is likely to be right for you.
Ways to save for a deposit
Rock-bottom interest rates over the past few years have made it really difficult for people saving for a house deposit to generate decent returns in order to reach their goal faster.
There are, however, government savings schemes available to help first-time buyers save up a deposit.
With the Help to Buy Individual Savings Account (ISA), for example, you can save up to £200 a month and the government will add another 25% to however much you save. So, if you put in the maximum £200 a month, the government will contribute £50 a month on top of this. The maximum government bonus you can claim is £3,000, and to earn this you’d need to save £12,000.
There’s also the Lifetime ISA, which aims to help those saving up to buy a property, or for retirement, or both. These accounts will be available to those aged between 18 and 40, and you’ll be able to put away up to £4,000 a year, which will be supplemented by a government bonus of 25%, up to a maximum of £1,000 a year. Returns will be free of income tax and capital gains tax (CGT). You have to have your Lifetime ISA for at least a year before you can use it to help you buy a home.
If you already have a Help to Buy ISA, you can transfer your savings into a LISA, or save into both types of account. If you do this, however, you’ll only be able to use the bonus from one of these accounts to buy a house.
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