If you’re not sure where to start with mortgage deposits, we’ve covered everything you need to know to bag the best deal.
When it comes to the world of mortgages, there’s no set sum that’s needed for a deposit. The amount you put down will depend on a number of factors - like the property’s value and your financial circumstances, but the general rule of thumb is the higher the deposit, the better.
The bare minimum
As an absolute minimum, if you’re looking to land yourself a mortgage you’ll need to rustle up a deposit of 5%.
So, for example, if the property you’ve got your eye on is selling for £130,000, you’d need a £6,500 deposit, and then your mortgage provider would lend you the remaining 95%.
That said though, according to research conducted by Halifax, the average deposit put down by first-time buyers in the first half of 2018 was 16%. Sticking with the property value above, that’s a sizeable £20,800 deposit.
The benefits of bigger deposits
It’s no secret that buying properties is getting more and more difficult - especially for first-time buyers. Saving up just 5% is no easy feat in itself, but if you’re able to put down a higher deposit, there are a number of benefits that come along with it, like:
1) Lower repayments
The more money you put down, the less you have to borrow which can result in cheaper monthly mortgage repayments.
2) Less interest
A mortgage is a form of lending, which means you pay interest on the amount you borrow. So, if you borrow less, in theory, there’s less interest for you to stump up.
3) Better deals
Mortgage lenders see people who put down higher deposits as less risky. Because of this, they’re more likely to offer you more attractive mortgage deals (i.e. lower interest rates) - we’ll cover this in more detail a little later on.
4) Less risk
Negative equity is when you owe more towards your mortgage than your property’s actually worth, and being in negative equity makes it more tricky to do things like move house or switch mortgage.
Quite simply, if you put a higher mortgage deposit down, you’ll own more of your home from the outset, which reduces the likelihood of you ending up in negative equity.
5) Increase your odds
Before offering you any kind of mortgage deal, lenders will run what’s known as an affordability check. Using your current income and outgoings, this enables them to see whether or not you can afford their proposed mortgage repayments.
As we mentioned in point one, the higher your deposit, the lower your monthly repayments, so the more likely you are to pass lenders’ affordability check in the first place.
Hint: for an idea of how much your monthly mortgage payments might cost you, check out our mortgage calculator.
Recommended mortgage deposit
When it comes to bagging the best mortgage deals, each time you hit a deposit milestone (i.e. 5%, 10%, 15%, 20%, 25%, etc.) the terms tend to enhance.
To show you what we mean, we did a bit of number crunching using an online, high street lender’s mortgage calculator.
Max. monthly payments
Total to repay
Total paid (incl. deposit)
5% - £6,500
10% - £13,000
15% - £19,500
20% - £26,000
25% - £32,500
(All calculations are based on a 25-year mortgage term).
Although these calculations are only indicative, as you can see, putting a higher deposit down can save you significantly in the long run.
Help saving for a mortgage deposit
Saving for a deposit can be daunting, but there is support available to help you reach that property-buying milestone:
If you live in England, are over 18-years-old and you’ve got your eye on a new build, you could be eligible for the Help to Buy scheme. With this, even if you only have a 5% deposit saved, you could be given an equity loan to put towards the purchase of the property.
You might not be able to stump up the deposit for the whole property, but could you afford the deposit for part of it? If so, shared ownership could be an attractive avenue to go down (providing it’s an option).
Shared ownership usually works on a 25%, 50% or 75% basis, and the lower your share, the lower your deposit.
If you’re a first-time buyer, the government have what’s known as a Help to Buy ISA where they pledge to boost your deposit savings by 25%. If you use it to its full potential, you could receive £3,000 towards your first home. To read into them in a bit more detail, head here.
For more news and tips on all things mortgage-related, head over to our dedicated mortgage hub.
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Intelligent Lending Ltd (Credit Broker). Capital One is the exclusive lender.