How much deposit do I need to buy a house?

If you’re thinking of buying a house, it’s highly likely you will need a mortgage. This is a loan used to buy a property, which you then pay back over time (plus interest).
 
However, lenders will rarely offer 100% mortgages for the full cost of the property and instead require you to put down a deposit. In other words, you will need to have a lump sum of money to put towards the house purchase to secure a mortgage for the remaining amount. The deposit needed varies depending on your financial situation, the mortgage type and the property you want to buy.
 
So, the question you’re likely asking is: “how much deposit do I need for a house?” Let’s dig a little deeper and find out…

A deposit is a lump sum you put down towards buying a property. Usually, the larger your deposit, the better the interest rate. So, it’s worth saving up as much as you can.
 
Your lender will expect you to pay back your mortgage plus interest. Your interest rate will impact the total amount you ultimately repay so it’s essential to consider your options carefully.

Mortgages are calculated according to their loan-to-value (LTV) ratio. This is how much money you need to borrow as a percentage of the house price. E.g. if you pay a 10% deposit (covering 10% of the house price), you will need a 90% LTV mortgage to cover the remaining cost.
 
100% LTV mortgages do exist, requiring no deposit at all, but they are rare and usually come with strict conditions e.g. needing a guarantor, and higher monthly loan repayments.

A lender may require a minimum deposit of 5-10% to secure a mortgage, but it’s more common to expect to put down at least 15-20% of the house value. Generally, the greater the deposit you can afford in terms of house price percentage, the better the mortgage terms and the more options you’ll have.

While the table above is a useful guide to help set your saving goals, there are several factors that affect exactly how much you need to save, including:

Property price
This is the most obvious factor: the higher the property price, the greater the deposit needed. E.g. a 10% deposit on a £500,000 house is £30,000 more than a 10% deposit on a £200,000 house.
 
Loan-to-value (LTV) and the lender’s criteria
A lender may only be willing to offer certain LTV mortgages e.g. they may not consider a 95% LTV mortgage in which case you’ll need to save more than 5% of the property value.
 
Type of mortgage
As you research the mortgage market you’ll discover there are lots of different types of mortgages including standard, first-time buyer help schemes, shared ownership, , etc. Each carries its own criteria, interest rates and required deposits so it’s worth looking around to find the best deal for your circumstances.
 
Your financial profile
Lenders will look at your income, expenditure, savings, credit history and credit score to assess whether they’re happy to lend to you, how much they’re willing to offer and the terms of the loan. They want to ensure you will be able to repay the mortgage.
 
Additional costs
While it’s useful to know how much you need to save for a deposit, remember to also factor in additional expenses of buying a property when calculating how much cash you need. Additional significant costs include stamp duty, legal fees, surveys and moving costs.

If the idea of saving a large lump sum seems unattainable, there are some schemes designed to help people buy a property that may interest you.

The lower the deposit required, the less you’ll need to save. Keep in mind that you’re likely to face bigger interest rates and higher monthly repayments, but it could be a way to access the property ladder.

This government scheme offers eligible first-time buyers a 30-50% discount on a new build home. You have to pass this discount on to the next buyer, too.

With this scheme, you purchase a share of a property and rent the remaining share from the landlord. You will only need to save a deposit for the share you purchase, considerably reducing the initial lump sum required. You also have the option to buy more shares as time goes on until you own up to 100% of the property.

Some lenders may be willing to offer a mortgage in which a family member can be added without owning the property.  Schemes are also available where the family can deposit 10% of the property’s value with the lender, and they can get their money back with interest after 5 years, subject to mortgage payments being made on time.  

A mortgage adviser will be able to help you understand your options.

While some lenders will offer a mortgage to people with small deposits and even no deposit at all, remember that to access better interest rates and ensure lower monthly repayments, the bigger the deposit the better. It may be better to hold off buying until you’ve saved a larger lump sum. If you can access lower interest rates, the amount you ultimately repay your lender may be significantly smaller. 

If you want to buy a house, you will almost certainly need to save a significant lump sum. We’ve put together some savings tips to help you on your way:

Yes, it’s very common for parents or immediate family members to help with a house deposit.

You should expect to be asked for a larger deposit for a Buy-to-Let property, often at least 25% of the property's value. This is because lenders view Buy-to-Lets as higher risk: tenants may leave, there may be rental voids, and landlords will usually prioritise repayments on their own home over their Buy-to-Let.
 
Second homes are also considered slightly higher risk, so you should expect to pay a minimum of 15-20% of the property price as a deposit.

Your deposit is paid via your solicitor to the person who’s selling the house.
 
Your solicitor will collect together your deposit and the money from your mortgage lender and transfer it all to the seller.

If you’re thinking of buying a house, the process can feel overwhelming, but we’re here to help. At Beresfords, our team of expert estate agents can talk you through your options and are happy to answer all your questions. We also have independent mortgage advisers available via our subsidiary company, Flagstone Financial Management Ltd, on hand to help you understand your options. Please get in touch to find out more.

 
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP WITH REPAYMENT ON YOUR MORTGAGE