House Mortgage Deposit

To buy a house or flat, you’ll need a house mortgage deposit. This is an amount you pay that is a percentage of the property price. For example, if the house you’re looking to buy is £300,000, you may need a deposit of 10% which would be £30,000. Your mortgage would make up the remaining £270,000. 

The minimum amount of deposit required for a home purchase is typically 5% - 10%, but you may require more depending on how much you can borrow on your mortgage and the purchase price of the property you’re considering.

In simple terms, a mortgage deposit is the required amount of money to pay upfront when you purchase a property and take out a mortgage. You pay your deposit at exchange which is when your solicitor and the seller’s solicitor exchange contracts.

The bigger the deposit, the less you have to borrow and the more equity you’ll have in the property upfront. A bigger deposit can give you access to better mortgage deals and lower rates. You can learn more about deposit amounts further on in the article.

The next important question is: how much deposit do I need? The amount you’ll have to pay in deposit depends on the value you’re borrowing and the mortgage product you’ve selected. Find out more about how much mortgage deposit you will need and how to save for a mortgage deposit.

Your deposit is normally worked out as a percentage of the value of the property you want to purchase. Although there are a few 100% mortgage type products on the market now, the maximum mortgage you can typically take out is 95%, which means you have to provide at least a 5% mortgage deposit. However, a lot of lenders will ask for a deposit of 10% or more. There are options to reduce the deposit you need – you can find more information on this below.

It’s worth trying to contribute as much in deposit as you can. A large deposit makes you appear less risky to lenders. This not only increases your chances of being accepted for a mortgage, but it also gives you access to better rates. Furthermore, you borrow less, which means your monthly repayments will be lower and you’ll accrue less interest.

To work out how much you will need to save each month to reach your deposit amount, try our calculator below. This calculator assumes that you are a basic rate taxpayer and your payments are made at the beginning of each month.

This calculator is for illustrative purposes and you should check the progress of your savings and review it regularly to ensure you are on track to reach your amount by the target date.

The average deposit for a house in the UK required by lenders varies depending on where you buy your property, as a higher property value increases how much deposit is required on a house. Deposits for houses in London, South East England and South West England will be higher than those in Northern England and the Midlands.

According to Money.co.uk: "The average first-time buyer deposit in the UK is £61,000, which is around 26% of the average first-time buyer house price (£236,783)". Bear in mind that house prices and therefore deposits vary greatly depending on location.

Deposits required in London and the South East tend to be a lot bigger than other areas in the UK. The North, Scotland, Northern Ireland and Wales are often cheaper than their Southern counterparts, making them much more affordable areas for those struggling to save a deposit.

It can still take years to save this kind of money though and it’s near enough impossible for some people. Thankfully, there are some options available that can reduce how much deposit you need.

Reduce How Much Deposit You Need for a Mortgage

Some lenders will offer you up to 100% mortgage - but this will come with certain caveats such as your parents needing to put up their own savings or property as security in addition to the property you’re buying, or your maximum borrowing being capped at a lower value.

Your parents can also give you your deposit as a gift or loan. But beware: if they lend you your deposit rather than gift it and you have to pay it back, it could affect your mortgage affordability.

The Government offers multiple schemes such as contributing to your deposit through a LISA, Right to Buy and Shared Ownership. These schemes aim to help first-time buyers with deposits and/or previous owners struggling to save enough for a deposit on a house or flat.

Buy-to-let properties are slightly riskier investments for lenders, which is why their rates are higher and they often require a larger minimum deposit - usually at least 25% - 40% of the property value.

Example

• You want to purchase a property for: £300,000
• You take out a 75% buy-to-let mortgage for: £300,000
• The buy-to-let mortgage deposit required is: 25%
• You pay 25% of £300,000 in deposit = £75,000
• The lender lends you: £225,000
• You purchase the property for: £300,000

You normally pay your deposit to your solicitor 1 or 2 days before the exchange of contracts.  The solicitor will hold on to that deposit until completion, at which point the mortgage money comes through and is added to the deposit money to make up the full sale price of the property. The solicitor will then pass this all to the vendor’s solicitor to complete the sale.  There’s usually a gap between the exchange of contracts and completion of a week or 2. This is sometimes longer, e.g. when buying a new build property. If your whole deposit is coming from the sale of your previous property, then your solicitor will usually make alternative arrangements.

You may be required to pay a holding deposit - also known as a reservation deposit - on your new home. This is different from your mortgage deposit. A holding deposit shows the buyer you’re serious about purchasing their property and prevents them from selling their property to someone else. It’s typically between £500 - £1,000, but it’s ultimately up to the seller and their solicitor to set the amount. They decide on an appropriate level which is affordable but enough to discourage either party from withdrawing from the transaction.

In the UK, we have a few different options that make saving for a mortgage a little easier.

Some ways to save for your first home include:

Use our mortgage comparison tool to compare all kinds of mortgage deals and rates.

For more information and to get started on your mortgage journey call us on 0330 433 2927.