One of the key parts of buying a home is the deposit. A mortgage deposit is the initial amount of money you pay when buying a house. This upfront payment is important as it shows lenders that you’re committed and capable of handling the costs of the loan. The larger your deposit, the less you’ll need to borrow.
What size should my deposit be?
The size of the deposit depends on the value of the home you want to buy. Generally, you need at least 5% of the total property value, as this is the minimum amount most lenders will accept.
For example, if the house you’re eyeing is worth £300,00, your deposit should be at least £15,000.
Calculating your borrowing power
The amount you can borrow is influenced by your deposit size. Other factors like your income, expenses, credit score, and whether you’re applying with someone else also play a role. Lenders use this information to determine how much you can comfortably afford to repay.
Options for small deposits
If you're struggling to save a large deposit, there are options to help you get started on your homeownership journey sooner. One option is the lifetime ISA, where the government provides a 25% bonus on your savings, up to £1,000 per year. Another option is the 95% mortgage, which is provided by most lenders to assist those with a 5% deposit in purchasing a home.
Getting a mortgage without a deposit
While it's typically advisable to have a deposit, there are alternatives. A guarantor mortgage lets a family member or friend help secure the mortgage using their own property or savings. Government schemes like the Right to Buy can also aid you in buying a home without a traditional deposit.
Deposits for Shared Ownership and buy-to-let mortgages
If you're considering shared ownership or a buy-to-let mortgage, you'll still need a deposit. The amount may vary based on the percentage of ownership or property value. For shared ownership, the deposit is smaller if you own a smaller portion of the property. Buy-to-let mortgages usually require a higher deposit, around 25% of the property's value.
Start the conversation
If you’re unsure about how your deposit affects your mortgage eligibility, reach out to one of our expert mortgage advisers. They’ll analyse your financial situation and help you find the right mortgage option for your needs and take you through the process of applying.
Get in touch today to find out more!
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