House Deposit

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Deposit. It strikes fear into home buyers. It’s one of the most talked about parts of buying a house, and the years it takes to save it up are arguably the most difficult part of homebuying. And the biggest deposit question is: how much deposit do I need? Let’s take a look.

0% deposit mortgages

Over a decade ago, you could get a variety of mortgages with absolutely no deposit at all. Right now though, these are few and far between.

The 0% deposit mortgages that do exist are usually guarantor mortgages.

These work by the homebuyer getting someone else – often parents or grandparents – to use their own property or savings as security to cover the deposit percentage.

Lenders have different rules around who can and cannot become a guarantor. Friends and even aunts or uncles for example are often not allowed.

Guarantor mortgages are quite risky, especially for the guarantors themselves. This is because if you can’t pay the mortgage, the guarantors are liable to pay it instead. It could lead to losing the home and the guarantors getting into serious financial problems.

House deposit savings chart

Deposit amount needed for a mortgage

Meaghan Weiley, Sam Lyons, Dylan Bartlett, Daniel Devlin. The amount of deposit you need for your mortgage is worked out as a percentage of the value of the house you’re buying. The mortgage is then based off what’s left – the amount you’re borrowing. So, the largest mortgages you can get are 95% mortgages. This means you would need a deposit of 5% of the cost of the house you’re buying. You may be able to use a Family Security Guarantee 1 where your parents use available equity (supported by a mortgage over their property, or a term deposit) to assist you with your home purchase.

Typical Deposit On A House

The amount of deposit you need for your mortgage is worked out as a percentage of the value of the house you’re buying. The mortgage is then based off what’s left – the amount you’re borrowing.

So, the largest mortgages you can get are 95% mortgages. This means you would need a deposit of 5% of the cost of the house you’re buying.

You can work this out by grabbing your smartphone and firing up the calculator. Get the house price, and multiply it by 0.05.

The average UK house price in June 2018 was £228,000 according to HM Land Registry.

This would mean the minimum deposit amount you would need for the average house in the UK is £11,400, because £228,000 x 0.05 = £11,400.

Find out more about saving up in our Saving money for a mortgage deposit guide

Recommended deposit for a mortgage

Because your mortgage is a loan, it attracts interest. Less interest means your mortgage is more manageable, keeping repayments under control and meaning you’ll have to spend on buying your house overall.

The mortgages with the best – the lowest – interest rates are only available when you have a large deposit. So, a 20% deposit will normally get you a mortgage with a lower interest than a mortgage that lets you have a 10% deposit.

Deposit

Also, keep this in mind. A deposit of 15% and a deposit for 17% give you access to the same deals. You only get better deals by going up 5% more to 20%. There are no little steps – you open up better deals every time you hit these milestones, 10%, 15%, 20% and so on.

When you get a mortgage deposit of 20%, you really start to get attractive mortgages.

This means that the recommended minimum deposit size is 20% of the price of your new home. For the average home of £228,000, that’s £45,600. That’s because to work out a 20% deposit on a house, you multiply the price by 0.2.

So, £228,000 x 0.2 = £45,600.

Loan to value (LTV) explained

House Deposit

You’ll see the phrase ‘loan to value’ or the letters ‘LTV’ bandied around a lot in the mortgage world.

It’s a way of working out how much you’re borrowing compared to the total cost of the house. You should be aiming for a low LTV, around 80%

It’s worked out using percentages. It might sound complex, but it’s very similar to working out a deposit.

All you need is your house price, deposit amount, and the amount your mortgage is for. You can work your mortgage out by just subtracting your deposit from the house price. Then, divide your mortgage by your house price, and multiply by 100.

For example, taking our average house price of £228,000 and our recommended deposit for this house price of £45,600, you’ll have:

Mortgage is £228,000 - £45,600 = £182,400
Mortgage divided by house price is £182,400 / £228,000 = 0.8
Then just multiply by 100 to get the final percentage 0.8 x 100 = 80% LTV.

Remember, lower LTVs mean better interest rates, but also higher deposits.

You’ll need to know about LTVs when you remortgage your house as well, so it’s not just something for first-time buyers.

Help to Buy scheme deposits

With the Help to Buy scheme, you need a minimum of a 5% deposit. So, on the average house price of £228,000 that’s £11,400.

Help to Buy works differently to getting a normal mortgage.

Firstly, it’s only available on houses priced below £400,000 in England, below £600,000 in London, below £300,000 in Wales and below £230,000 in Scotland. There’s no scheme in Northern Ireland.

It’s also only available on new build properties.

The mortgage you get is for 75% of the LTV of the house. 20% is taken from an equity loan, with the final 5% taken from your deposit.

In London, the 20% equity loan be as high as 40%, so you’d get a 55% mortgage.

The equity loan is the special part of the Help to Buy scheme.

House Deposit Agreement

You don’t pay any interest or fees on it for the first five years. In the sixth year, you’ll be charged 1.75%.

After that, the fee rises by inflation based on the Retail Prices Index (RPI) plus 1% each year.

Find out more on our Help to Buy: Everything you need to know page.

House Deposit Definition

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So — the question on every first homebuyer’s lips — how much do you need for a deposit?

Well, it depends. How much you need for a deposit depends on the lender and their lending criteria. Some lenders may let you borrow 90-95% of your home’s value, so you may only need to save a 5% deposit. That could be as little as $25,000 for a property worth $500,000. Other lenders may have other criteria and demand more.

However — even though we know you’re keen to get into your own home soon— there are good reasons to aim for a bigger deposit. For one, it means you need to borrow less money overall, so your monthly repayments will be lower.

House Deposit

It could also mean that you pay less interest over the life of the loan — if there’s less to pay off, there’s less interest to pay. A large deposit also means that lenders will see you as less risky, so you could be in a better position to negotiate a lower interest rate from the beginning.

House Deposit Loans

Your home loan deposit is likely to be a cash deposit, but there are a few other deposit options that lenders may accept.