Purchasing a property is one of the largest investments most people make in their lifetime. As a result, many home buyers are interested in high deposit mortgages as a way to reduce interest costs and increase the likelihood of getting a competitive mortgage deal.
In this high deposit mortgage guide, we explore the benefits and drawbacks of a high deposit mortgage. We share insights about how banks and building societies view high deposit mortgages, and whether a high deposit mortgage is the right option for you whether you're moving to a larger property or buying your first home.
The Topics Covered in this Article Are Listed Below:
- Does a High Deposit Increase Chance of a Mortgage?
- Can I Get a High Deposit Low Income Mortgage UK?
- Can I Get a Mortgage Without Proof with a High Deposit?
- How to Get the Best Mortgage Interest Deal with High Deposit
- How to Get the Best Mortgage Length Terms with a High Deposit
- Do Any Banks Do Mortgages for Low Income High Deposit?
Does a High Deposit Increase Your Chance of a Mortgage?
A 10% deposit - 5% mortgage deposits are possible in some cases - is typically the minimum you need for a residential mortgage. There are all sorts of products with 95%, 90% and 85% LTVs (loan-to-value), as many people struggle to save a bigger deposit. Saving a high deposit can make you stand out from other homebuyers and give you access to better deals with lower rates.
A high deposit is anything from 25% and above of the total property value. For a £100,000 property, this would be £25,000 or a 75% LTV (loan-to-value). In most cases, a 25% deposit can significantly reduce the interest rate you pay on your mortgage.
For prospective homeowners lucky enough to have a 40% deposit, this is where you'll find the best deals and interest rates. A £100,000 property would require a £40,000 deposit. With nearly half the property paid for upfront, banks and building societies experience much less risk and can offer interest rates lower than the industry average.
As a high deposit reduces the risk for lenders, it also increases your chances of a successful mortgage application. However, other factors affect eligibility too – e.g. age, income, credit history.
Can I Get a High Deposit Low Income Mortgage UK?
Mortgage acceptance is all about the balance of risk. A bank will assess your ability to meet the capital and interest payments over the mortgage term.
The capital repayments are what make zero income and low-income applicants a risk for lenders. You may have a large lump sum as a deposit, but how will you afford the rest? If your monthly income isn’t quite enough for your desired mortgage deal, then, in order to make it more affordable, some lenders may extend the mortgage term or reduce the amount they’ll lend you.
Banks typically allow 4.5 – 5.5 times your annual salary when approving a mortgage. The UK Government defines "low income" as households earning less than 60% of the national median wage. In March 2022, data company Statista reported the median income as £2,061 per month. This means a salary below £14,839 annually is considered low income.
Multiplied by a factor of 4.5, the maximum amount you could theoretically borrow with an income of £14,389 annually, would be £66,776. If lenders have a greater risk appetite and offered to multiply your income by 5.5, you could borrow up to £81,614.
It's possible to get a high deposit low income mortgage but your selection of mortgage products may be limited. A high deposit of 25% or above reduces the risk for lenders, but a low income may reduce your ability to make monthly repayments. This also limits the ceiling for borrowing to 4.5 times your income in most cases too.
It’s worth bearing in mind that, in some cases, a higher deposit can lower your LTV, meaning you borrow less and improving the chances of a successful mortgage application despite a lower income.
Proof of Income and High Deposit
You wouldn’t ever be able to secure a high deposit mortgage without any proof of income. Remember, even though you are providing a lot of money upfront, you'll need more money to make repayments long term. Lenders will assess your financial stability and whether they can rely on you to service the loan.
You may think that being self-employed will make it more difficult to prove your earnings, but fortunately that's not the case. All you need to do is provide the lender with different information about your income than an employed person. Being self-employed in itself shouldn't affect your borrowing or access to mortgage deals.
A mortgage with no requirement for proof of income is known as self-certification. This type of mortgage was deemed inadequate by the Financial Conduct Authority in the 2009 credit crunch and is no longer offered.
Proof of Deposit and High Deposit
High deposits are great at reducing long-term borrowing costs for consumers and alleviating risk for lenders.
Regulations stipulate that a deposit cannot come from an illicit source. This means that many banks and other lenders require proof of deposit (POD) as part of your application.
A POD is used to determine where the deposit funds came from, such as savings from regular income or an inheritance lump sum.
How to Get the Best Mortgage Interest Deal with High Deposit
The bigger your deposit, the less you need to borrow, the lower your rate and the better your deal.
All of these factors go towards reducing the cost of your mortgage. By borrowing less, you lower the amount on which interest is accrued and, by securing a lower rate, less interest is applied to every pound borrowed. This means that a higher deposit can reduce the amount you pay in interest by thousands.
Compare high deposit mortgage rates with our best buys tool.
How to Get Best Mortgage Length Terms with High Deposit
In addition to reducing your rate and the loan amount, another way a high deposit can reduce the interest you pay even further is by reducing your mortgage term. This is because the higher the deposit, the less you need to borrow from the lender. And, the less you borrow from the lender - i.e. the smaller the mortgage amount - the less time you need to pay it back and the shorter the period over which interest is applied.
Call us on 0330 433 2927 to speak to one of our expert advisers who’ll be able to find you the best mortgage with a high deposit and low LTV for your circumstances.
Do Any Banks Do Mortgages for Low Income High Deposit?
Most banks and mortgage lenders don’t have a minimum income threshold. However, some may specify a minimum loan amount – e.g. £5,000.
To find out if you can get a mortgage on your income, contact us on 0330 433 2927.
Where Can My Mortgage Deposit Come From?
Want to know where your mortgage deposit can come from? See our guide for information on legitimacy and which sources lenders deem acceptable and unacceptable.
Mortgage Deposit Guide
How much deposit will you need for your mortgage? We explain how mortgage deposits work, what LTV is, how your deposit affects your mortgage and more.
First-Time Buyer Mortgages
If you’re thinking of buying your first home, discover the latest advice and the best first-time buyer mortgages available on the market with John Charcol today.
Gifted Deposit Mortgage
Can you get a mortgage with a gifted deposit? Find out in our guide. We explain what a gifted deposit is, how it works, the benefits, risks and more.
Large Loan Mortgages
Find out everything you want to know about large mortgages for high net worth individuals buying high value properties.