First-time buyers navigating the complexities of purchasing their first home often find themselves grappling with one crucial question: How much should be saved towards their mortgage deposit?
Due to skyrocketing home prices and tightening budgets, saving for a mortgage has become more challenging for individuals. New buyers often lack clarity on the best ways to save for a deposit and how much they need to save before they can afford a mortgage.
This guide will provide all of the details on how a mortgage deposit works and how much a first-time buyer requires as their deposit.
What is a mortgage deposit?
Before looking to buy your first home, it’s crucial to understand mortgage deposits. A mortgage deposit is an initial payment you make towards purchasing your home; this amount has an immediate impact on your loan-to-value (LTV) ratio; lenders use the LTV ratio as an important risk assessment factor; generally speaking, lower LTV means lower risk loans, which in turn lead to better mortgage terms for you as the borrower.
Example: If you purchase a £200,000 house with a 10% deposit (£20,000) and borrow 90% (£180,000), you will have a mortgage with a 90% loan-to-value ratio.
How much deposit needed for mortgage?
In most cases, you will need a mortgage deposit of at least 5%, but it is recommended that you save for a bigger mortgage deposit of 10% if possible, as this will give you more options from the mortgage lenders. You will then borrow the rest of the money to pay for the house in the form of a mortgage, which is paid back in monthly instalments.
How much deposit for a first time buyer?
In most cases, first-time buyers are expected to put down a mortgage deposit of at least 5% of the total market value of the house, leaving them with a 95% loan-to-value mortgage. If you can save a 10% deposit to get a 90% loan-to-value mortgage, then you will have a wider range of mortgage products and deals available to you.
Although a 5% deposit is considered the minimum deposit you need by a mortgage lender, recent times have seen even smaller deposit amounts of 1% and even 0%.
2021 saw an rise in 95% mortgage products being introduced; 2023 witnessed an interesting transition with some lenders offering both 1% deposit and 0% deposit mortgages despite high cost of living issues and rising interest rates. Our mortgage advisors still recommend saving for a 10% deposit as more 90% mortgage products may provide greater flexibility and potentially better rates and terms in today’s economic environment.
How much deposit do you need for a house in the UK?
In 2024, a small deposit of 5% is still widely accepted by mortgage lenders, similar to the situation in 2021 and 2022. However, a 10% deposit will open up a wider range of better rates and deals.
The average property value in 2024 is £263,600. For purchasing a house in the UK, this translates to a deposit requirement of:
- £26,360 for a 10% deposit.
- or a smaller amount of £13,180 for a 5% deposit.
In England, an average terraced house price is approximately £263,600; thus, a 5% deposit would amount to £13,180.
In Wales, the average terraced house price is lower at approximately £166,000, so your deposit would likely be considerably less at only £8,300.
In Scotland, the average terrace house prices average £160,000, necessitating an even lower deposit requirement of around £8,000.
Northern Ireland boasts the lowest UK average terraced house price at £143,230, requiring the lowest deposit amount yet of £7,161.50.
Please be aware that each property price may differ as these are averages; actual costs may differ based on location or other considerations. It is always advisable to seek assistance from a local estate agent or property website for accurate and up-to-date information.
Average Deposit in 2023 by UK Region
The below graph shows the average deposit percentage by first-time homebuyers in the UK by region in 2023.
Should I Put Down The Minimum Deposit Required?
Saving more than the minimum required can have long-term advantages for both mortgage options and financial management. While 5% is often accepted for a low deposit mortgage, setting aside a bigger deposit of 10% will open up more options, lower interest rates and reduced monthly payments – not to mention greater flexibility when choosing your mortgage deal! Plus, a larger deposit enables more expensive home purchases and greater selection flexibility among loans offered by banks or building societies based on lending criteria and varying interest rates.
Consult a broker to determine what amount can be borrowed based on your savings and income as banks/building societies vary lending criteria and interest rates depending on your deposit and income.
Discover The Best Mortgage Rates for First Time Buyers
Can you buy a property without a deposit?
While most individuals can comfortably manage monthly mortgage payments, entering the property market often poses challenges due to its substantial deposit requirements. This leaves first-time buyers wondering whether securing a loan without needing such an extensive deposit is even possible.
Indeed, obtaining a mortgage without a deposit, known as a 100% LTV (Loan to Value) mortgage, is possible. Under such an arrangement, banks lend out the full purchase amount without any down payment required from you. Although this seems like an attractive path into property investment, this solution comes with significant drawbacks that you should be aware of before taking this path.
Which Lenders Offer No Deposit Mortgages?
Securing a 100% mortgage may seem challenging in today’s economic climate, yet Skipton Building Society offers 100% mortgages to first-time buyers who demonstrate solid rental payment histories – typically the equivalent of their monthly rent payment amount.
Below are some other lenders that offer no-deposit mortgages as well as other alternatives:
- Skipton Building Society: Introduced their Skipton 100% Mortgage: called ‘Track Record’ mortgage in 2023.
- Barclays: Barclays’ Family Springboard Mortgage is a type of guarantor mortgage which allows potential homeowners to buy without a large deposit by having a guarantor provide security, making it easier to take the crucial step onto the property ladder.
- Halifax: Halifax’s Family Boost Mortgage is designed for buyers who find it difficult to save for a traditional deposit, allowing family members to contribute 10% of the purchase price into a 3-year fixed-term savings account as security instead.
- Santander: Considers don’t offer no-deposit mortgages but consider personal loans as deposits on a case-by-case basis.
But getting a 100% mortgage may prove particularly difficult for those with poor credit scores or outstanding debts, even those with good credit who otherwise meet all the mortgage providers’ requirements. Banks tend to limit them even then; typically, only when applicants are debt-free will they grant one of these 100% loans.
Are 100% Mortgages a Good Idea?
100% mortgages are a great way for first-time buyers struggling to save for a deposit to get their foot on the property ladder. However, negative equity poses another significant threat, wherein the value of your home falls below the outstanding mortgage balance. This situation can cause considerable financial loss when trying to move or remortgage, although its risks decrease with more mortgage payments being made each month. Negative equity remains an ever-present risk when carrying 100% loans over multiple years.
Can monetary gifts be used for a deposit?
When you have to pay rent, it’s incredibly difficult for people to save, especially if they live in an expensive city. Many first-time buyers are unsure whether they can buy a home with money that has been gifted or whether they need to raise the money for a deposit themselves.
The short answer is, yes, you can get a mortgage for your first home or subsequent home with a gifted deposit. However, there are some hurdles that you may face because certain banks will not accept any gifted deposit at all, which means that your choice of mortgage is more limited. Most lenders require a gifted deposit letter for mortgages. Some banks also put caps on the amount that is allowed to be contributed by parents. Nationwide, for example, specifies that only 25% of the deposit can be gifted by parents, and the other 75% must come from the purchasers’ own savings.
Lenders may also ask parents to clarify that they understand that the money is a gift, that they do not expect to own any portion of the property in return, and that they don’t expect to be paid back at any time. You will find that most banks are also very cautious about monetary gifts from friends.
Does The Deposit Amount Affect Monthly Payments?
Without question, the size of your deposit has an immediate and profound effect on the mortgage’s monthly repayments. A higher deposit not only lowers your loan-to-value (LTV) ratio and makes you less risky to lenders but also often secures better interest rates, which in turn lower monthly repayments.
Let’s consider an example with a 5% interest rate. When buying a £200,000 property with a 5% deposit (£10,000), borrowing would total £190,000. Assuming a 25-year mortgage term at this interest rate and term would produce approximately a mortgage repayment amount of £1,111. By increasing to 10% (£20,000), monthly mortgage expenses decrease mortgage repayments to approximately £1,052.26, saving you over £59 a month and giving you more room for savings and expenses.
- Learn what the average mortgage payments in the UK are here
First-Time Buyer Deposit Incentives and Programs
Financial planning for first-time buyers can be an enormously daunting challenge, particularly when it comes to deposit accumulation. There are various incentives and programs designed to make homeownership a less daunting prospect.
1. Lifetime ISA (LISA) for First-Time Buyers
The Lifetime ISA can boost savings by 25%, providing up to £1000 annually in government bonuses for individuals aged 18-39. It is designed specifically to accelerate deposit savings for homes priced up to £450,000 purchases.
2. Help to Buy: Equity Loan Scheme
Help to Buy: Equity Loan scheme will no longer accept new applicants after March 2023; however, existing participants continue to benefit. The program provided new-build home purchases with as little as 5% downpayment available with interest-free government loans up to 20% (40% in London). Remortgaging options under Help to Buy can allow participants already within it to adjust financial commitments or build equity more quickly.
3. Shared Ownership and Deposit Assistance
Shared Ownership mortgages offers buyers an affordable way to reduce the initial deposit required, enabling them to buy part of a property (25-75% ownership) while renting the remaining portion. This approach allows a gradual transition towards full ownership – particularly helpful if large deposits prove prohibitive.
4. First Homes Scheme: Discounted Deposit Requirements
Aimed at providing first-time buyers and key workers in local communities access to new homes priced up to 30% below market value, the First Homes Scheme offers new houses at significant discounts of at least 30 % below their market value – providing immediate savings in deposit requirements and making mortgage acquisition easier for these first-time homebuyers. Prioritization ensures these discounts benefit future first-time home buyers as well.
5. Stamp Duty Relief for Lower Deposit Savings
Stamp duty relief in parts of the UK helps lower upfront buying costs. First-time home buyers purchasing properties up to £300,000 receive full exemption with reduced rates offered up to £500,000; this can free up funds for deposits or other costs related to homeownership planning and aid financial preparation for homeownership.
Independent Mortgage Advice From A Mortgage Broker
Engaging a mortgage broker can greatly ease the home-buying process. Not only can brokers guide you towards the best deposit amount for your situation, but they also provide access to a range of products tailored specifically to your financial situation. They can assist in comparing interest rates and terms from various lenders (over 90!), saving time and money in comparisons across various mortgage deals. They may even have access to special offers not available elsewhere, ensuring you obtain the most cost-effective terms for your mortgage loan application process.
Engaging with a broker also gives you expert guidance during application processing, ensuring a smoother, simpler experience when navigating complex loan application procedures.
Frequently Asked Questions
How much deposit is needed for a 300k house?
Typically, for a £300,000 house, you'll need a deposit of £15,000 to £30,000, equating to 5%-10% of the property value.
Is £50,000 enough for a house deposit in the UK?
Yes, £50,000 is a substantial deposit in the UK, often covering 20% of a home's value, suitable for the average £250,000 property.
How much deposit do I need for a 300k house UK?
For a £300,000 house in the UK, a deposit of £45,000 to £60,000 is required, which is 15% to 20% of the property's value.
Is 20% enough for a house deposit?
Yes, a 20% deposit is usually sufficient, offering access to mortgages with lower interest rates than those with a 10% deposit.
How much deposit do I need for a 250k mortgage UK?
A £250,000 mortgage in the UK requires a deposit of £12,500 for 5%, £25,000 for 10%, or £37,500 for 15%.
Is 10% deposit enough for a house?
A 10% deposit is generally acceptable for buying a house, as most lenders require at least this amount of the property's price.
How much deposit do first time buyers need?
First-time buyers typically need a minimum of a 5% deposit to qualify for mortgages, including those under the government’s mortgage guarantee scheme.
