How much deposit do you need for a mortgage?
In the current market you’ll usually need a deposit of at least 5% of a property’s value to get a mortgage. A mortgage lender would then lend you the remaining 95% of the property’s value.
So, if you wanted to buy a £150,000 property, you would need to save up at least £7,500 and borrow £142,500.
However, many first-time buyers put down more than 5%, for reasons we'll explain below. According to research from Halifax, the average deposit put down by those buying their first home in the first half of 2018 was 16%.
- Find out more: what is a mortgage?
How much deposit will you need in cash terms?
To calculate how much you’ll need to save for your mortgage deposit in cash terms, there are two things you should consider:
Typical property prices in your area
You can get a rough idea of this from property websites such as Rightmove or Zoopla, but speak to local estate agents to get the most accurate information.
How much can you afford in repayments each month?
You can find typical mortgage rates using the Which? Money Compare mortgage tables, then understand how much your monthly payments would be based on different interest rates using our mortgage repayment calculator.
Start by assuming you would borrow 95% of the property's value. If you can't afford the repayments for a loan of that size, you will need to save a bigger deposit or investigate schemes such as Help to Buy.
Reasons to save a bigger mortgage deposit
While 5% is the minimum you'll need, there are plenty of reasons to save more if you can.
1. Cheaper monthly repayments – it might sound obvious, but the bigger your mortgage deposit, the smaller your loan will be. The smaller your loan is, the cheaper your monthly repayments will be.
2. Better mortgage deals – a larger deposit will also make you less risky for mortgage lenders and, as a result, they'll generally offer you lower interest rates.
For instance, when we checked in November 2018, the average rate on a two-year 95% mortgage was 3.6%, whereas for 90% mortgages it was 2.79% - a difference of 0.81%. That said, there are an increasing number of 95% mortgages launching at the moment and the gap between the two may be beginning to close.
3. Improved chance of being accepted – all lenders conduct affordability checks to work out whether you can afford the mortgage repayments, based on your income and outgoings. If you only put down a small deposit it’s more likely you will fail these checks because you'll need to spend more on your mortgage each month.
What's more, lenders only tend to offer a loan of three times your annual salary for a mortgage, so if your salary is relatively low and you can't borrow enough, you may need a larger deposit just to make up the value of the property.
4. Less risky – if you own more of your home outright you are less likely to fall into ‘negative equity’, where you owe more on your mortgage than your property is worth. Being in negative equity can make moving house or switching mortgage very difficult.
- Find out more: how to save for a mortgage deposit
Saving for a mortgage deposit calculator
Saving for a deposit can seem like a never-ending journey. We've created a deposit calculator to give you an idea of when you'll have saved enough deposit to buy a home in your area.
Map: how much deposit are first-time buyers in your area putting down?
As the map shows, people buying properties in London and the south-east of England are paying higher deposits than most other areas of the UK, with those buying a property in Camden paying nearly £175,000 for a 28% deposit.
This is partly because housing prices are generally higher in these areas, and therefore even a 5% deposit can require a savings pot of around £20,000. In areas where smaller deposits are paid, such as South Lanarkshire, a deposit of £19,575 would cover 16% of the average property price.
- Find out more: how to buy a house
How much deposit is paid on exchange of contracts?
When you come to the point of exchanging contracts on a property, you'll usually pay a deposit to show you're serious about going through with the purchase.
The standard amount for an exchange deposit is 10% of the property value - but if you're planning on buying with a 5% deposit, for instance, that can usually be negotiated by your conveyancer. Let them know as early in the buying process as possible so they can warn the seller's conveyancer about it.
The exchange deposit has been a sticking point with some people who've wanted to use the bonus earned on their Help to Buy Isa at this stage of buying their first home. As the bonus is only paid on completion, you can't use it as an exchange deposit, and will therefore need to have money from an alternative source.
If this is going to be difficult for you, your conveyancer may be able to negotiate a further reduction to the exchange deposit.
- Find out more: exchange and completion
You'll often see mortgages described as being a certain 'LTV'. This stands for loan to value ratio, and basically means the percentage of the property price that will be covered by the mortgage.
For example, if you provided a 5% deposit, you'd need a mortgage with a 95% LTV.
The calculator below lets you enter a property price and how much deposit you've got, and tells you what LTV your mortgage will need to be.
Your options if you're struggling to save
Help is at hand if you're struggling to save up a big enough deposit for your first home. Why not investigate the following options?
- Help to Buy equity loan - you put in a deposit of 5%, the government lends you up to 20% in England and Wales (or 40% in London, 15% in Scotland), and you get a mortgage to cover the rest
- Shared ownership - you buy a share of the property (25%-75%) and pay rent on the rest
- Buy a house with your friends - it's not without its risks, but works brilliantly for some
- Get help from your parents or family members - they don't necessarily need to gift you cash towards your deposit, there are other options
- Help to Buy Isa - a savings account offering a 25% bonus from the government when you buy your first home
- Lifetime Isa - another account offering a 25% government bonus, although with this one you need to be aged under 40 and can't access your savings or the bonus until you've had the account for at least a year
- 100% mortgages - see below
A 100% mortgage is a mortgage for the full cost of the house, meaning you don't need to put in any deposit at all.
Currently, the only kind of 100% mortgage you can get is a guarantor mortgage, where a family member takes on some of the risk of your loan by offering up their home or savings as security in the event that you don't make your mortgage repayments.
There are very few 100% mortgages on the market, and they carry a significant risk of negative equity - when you owe more on your mortgage than your property is worth - so you and your family should take professional advice before applying.
- Find out more: 100% mortgages advice guide
Mortgage deposits for buy-to-let properties
To get a buy-to-let mortgage you'll usually need a deposit of at least 20-25% of the property's value - but, as with residential mortgages, the higher the deposit, the better the deal you're likely to get.
Lenders ask for a higher deposit because buy-to-let properties are deemed a riskier investment for them: as you won't be living there yourself and will likely need rent from tenants in order to keep up with your own repayments, there are more things that could go wrong.
- Find out more: buy-to-let mortgages explained
Mortgage deposit FAQs
Click the rows below for answers to some of the most frequently asked questions when it comes to property deposits.
Will I get my mortgage deposit back?
While other kinds of deposits - such as a damage deposit for a holiday home - may be returned back to you, this is not how property deposits work. With a deposit on a property you're paying a small portion of the overall price, and the mortgage lender is loaning you the rest. Then, over time, you gradually pay the mortgage lender their money back.
You won't be refunded the deposit back once you've bought the house, or if you move, but as you've used it to buy a percentage of the house you essentially keep it as equity.
Who do I pay a mortgage deposit to?
While you do need to prove to your mortgage lender that you have the funds saved, you actually pay the deposit to your conveyancer at the point of exchanging contracts.
Once the contracts have been signed and the mortgage has completed, your deposit will go to the property seller, along with the money from your lender covering the rest of the property value.
Can I pay for my mortgage deposit with a loan?
This often depends on the type of loan, your lender, and how much you want to borrow.
Lenders will ask how you've come up with the money for your deposit, and will usually state that it needs to be from a 'non-refundable' source - i.e. your own savings or a gift from a family member - rather than a loan or anything you'll have to pay back.
However, loans repayable upon the sale of the property are OK with some lenders - this might be the case if your parents or a friend has loaned you some money for your deposit.
Even if you're taking out a loan that's repayable on a monthly basis, some lenders will accept it - but they'll factor it in to how much they will lend. So, if you've taken out a loan for your deposit, it's likely you'll be able to borrow less than if you paid from your own savings.
Can parents contribute towards my mortgage deposit?
Yes, but if your parents want to give you a contribution towards your deposit there are certain procedures that need to be followed - check out Which? Mortgage Advisers' guide to gifted deposits for more information.
Giving you a deposit isn't parents' only option, however. There are various 'family assist' mortgages on the market and other options too.
Find out more: how parents can help first-time buyers
Will I need a bigger deposit if I have bad credit?
Quite possibly. When you're applying for a mortgage, lenders will take your deposit and salary into account, but they'll also use your credit history as part of their assessment of whether you are likely to be able to pay back a large loan. If your credit history shows that you've failed to keep up with other loan repayments, defaulted on bills or faced County Court Judgments (CCJs), some lenders won't lend to you.
Other lenders will still consider you for a mortgage, but it's likely that you'll have to prove that you've kept up with repayments for a certain amount of time, and the most competitive rates and higher LTVs may not be an option.
Find out more: bad credit mortgages
Buying a house: extra costs
Although the mortgage deposit is the biggest part of the overall costs that you’ll need to pay to buy a home, there are other things you will need to budget for when saving up, including:
- Stamp duty: this is a tiered tax that you may need to pay, although first-time buyers get a discount on properties costing between £300,001 and £500,000, and don't have to pay anything on properties costing up to £300,000. You can work out how much you'll pay using our stamp duty calculator.
- Mortgage arrangement fees: some lenders charge anything up to £2,000 to arrange your mortgage, but there are fee-free deals too - talk to a mortgage broker for help finding the right deal for you.
- Legal fees: you'll need to appoint a property solicitor or conveyancer to do the legal work on your property purchase. Costs vary between firms, and can range from a few hundred pounds to more than £1,000.
- Property survey: these can range from £100 to more than £1,000.
- Land registry fees: these can range from £40 to £910, depending on the value of the property.
Find out more: the cost of buying a house - a more detailed look at what you'll need to budget for.
Get one-to-one advice on deposits
Even if you're in the early stages of saving for a deposit, getting expert impartial advice will often make the whole process much easier. The friendly team at Which? Mortgage Advisers are there to answer even the simplest questions, and you can call them for free on 0800 197 8461.
Alternatively, you can fill out the form below for a free call back.