Buying a home is often the biggest financial decision you’ll make in your life. It’s therefore important to find out how much mortgage deposit you’ll need and how to get the best deal.

The trickiest part of the equation to balance is: should you wait to save up as large a deposit as possible and increase your purchasing power, or is it better to work with what you’ve already got and prioritise just getting on the property ladder?

Then there’s the question of what deals are out there. What is the minimum deposit size currently being offered by lenders? And what LTV (loan-to-value) ratio should you be looking for?

How Much Deposit Do I Need for a Mortgage?

Applying for a mortgage

How much deposit you need will depend on the value of the property you want to buy and how much you can borrow. Working these out will give you enough information to research different areas and find properties that might be right for you.

To do this, you’ll have to get to grips with the concept of the LTV - or loan-to-value ratio. This refers to the size of the mortgage – the loan – in relation to the value of the property. The gap between the loan and the value is the deposit you'll have to pay.

For example, an LTV of 90% means that your deposit will be 10% of the value of the property. If you currently have £10,000 in savings for a deposit, this means you could buy a property valued at £100,000. The absolute maximum LTV offered by lenders is 95% of the property’s value, which means the minimum amount you’ll need in deposit is 5%.

There are 2 main ways to work out how much deposit you need and what you can borrow using LTV. Starting with properties you love is the fantasy “top down” approach whereas starting with what you've already got in savings is the practical “bottom up” approach. Learn how to do this below:

Top down: you can multiply the price of a desired property by the LTV figures to reveal the deposit you need and how much you can borrow

For example:

  • A house is valued at £190,000
  • The maximum LTV deal on the market is 95%
  • You multiply £190,000 by 0.05 (5% of the value)
  • This reveals you need a deposit of £9,500

Bottom up: you can use the savings you already have to calculate the property price you can afford and how much you can borrow

For example:

  • You have £20,000 in savings that you want to use for your deposit
  • You want a mortgage deal with a 90% LTV
  • This means the £20,000 will make up a 10% deposit
  • You divide £20,000 by 0.1 to find the purchase price
  • The purchase price available to you at this LTV is £200,000
  • This means you would need to borrow £180,000

Working these out can give you a better idea of what you need in deposit, what you can borrow and the price of the house you can afford. There are other factors that will affect your options – like your income – but your adviser will work this out for you and walk you through the process.

For more on the basics of mortgage deposits, why not watch one of our explainer videos? Or learn more about buying a home for the first time in our guide.

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What Is the Minimum Deposit Needed for a Mortgage?

The minimum deposit needed for a mortgage is 5%, but you’ll have access to more and better deals if you can contribute 10% or more. Bear in mind also that the average house deposit for first-time buyers in the UK is approximately 15%.

If you do find a 5% deposit deal, you should factor in the higher interest rates you’ll be paying compared to a higher deposit offer. A 95% LTV may superficially sound like a better deal, but your monthly outgoings will be higher. To work out how much your monthly repayments will be, you can use our repayment calculator.

From a lender’s perspective, a 20% deposit often hits what they consider the sweet spot of reduced risk. This can mean more attractive packages will be available to you.

How Does My Deposit Affect the Interest Rate?

The higher the LTV – and the lower the deposit - the higher the interest rate you’ll be offered. Higher interest rates mean that you’ll end up paying more over the duration of the loan, whereas lower interest rates mean that ultimately, you’re paying less for your property.

The message is clear – you should aim for as large a deposit as you can afford when applying for a mortgage. This means lower monthly payments and less stress on household budgeting. It also means you’ll have more options in terms of deals on offer.

A larger deposit also reduces risk. If your deposit is smaller and there is a market downturn, you may find the value of your home is less than the sum you owe to your lender. This situation is called negative equity.

What Is the 5% Basis?

Many homebuyers don’t realise that mortgage lenders separate deals across 5% bands, or what's called the 5% basis. If you’re aiming for a 5% deposit, you’ll be offered one rate, but with a 10% deposit, you’ll be offered a better interest rate. If you can afford a 15% deposit, you’ll have a better deal still.

You may ask why knowing this matters. If you’re currently working with an 8% or 9% deposit, you’ll still be offered the same rates as a 95% LTV. If you can increase the size of your deposit to 10%, you’ll find more deals at better rates, reducing monthly repayments and the total cost of your home. This rule applies in the same way with lower LTVs. You may find a slight increase in your deposit size will ultimately deliver better value.

Can I Get a 100% LTV Mortgage?

100% mortgage means that the loan covers the full purchase price of the property, allowing you to buy your home without a traditional deposit.

For first-time buyers or those without equity in their current property, buying a house without a deposit will still require some security – usually in the form of savings or equity put up by a family member. These types of mortgages are known as Family Springboard or Family Assist mortgages.

Can I Get a 95% LTV Mortgage?

There are a few 95% LTV mortgage products available, however you’ll have access to more and better deals if you can provide a deposit of 10% or more.

The alternative route to a 95% mortgage is through the government-backed mortgage scheme launched in 2021. This provides guarantees to high street lenders and helps first-time buyers or current homeowners secure a mortgage with a 5% deposit to purchase property with a value of up to £600,000.

What Deposit Do I Need for a Buy-to-Let Mortgage?

Buy-to-let mortgages usually require a deposit of at least 25% of the property value and up to 40% depending on the lender and what you're buying. You’ll need a good credit record and to show your property can be rented out.


Saving for a Deposit

You may have researched the property market and calculated what property you can afford, but you still may not have sufficient savings to put down a deposit. In this case, it’s worth thinking about how you can add to your savings.

Maybe you could start by trimming household expenses, perhaps by cutting back on luxuries, such as gym memberships, or eating fewer meals out. You could even consider setting up a direct debit to transfer spare cash to a savings account after you're paid each month.

You can also consider selling items that you're not using or don’t really need. Some discipline, and focus on your long-term goals, might be all you need to get to your savings finish line.


What Is Help to Buy?

If you’re still struggling to find a deposit, another government scheme may help. The Help to Buy scheme was launched in April 2021 and is aimed at first-time buyers. With this scheme, the government will lend homebuyers up to 20% of the cost of a new-build property – up to 40% in London – interest-free for 5 years. You’ll pay a deposit of at least 5% of the purchase price. The maximum purchase price depends on where in England you live. The scheme is due to end in 2023 so if this is something you’re interested in it’s worth speaking to an adviser sooner rather than later. Call us on 0330 433 2927.

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