10% Deposit Mortgages | Home Buying with a 90% mortgage

Gathering funds for a property deposit can be a significant milestone, particularly for individuals stepping onto the property ladder for the first time. While many assume they must save at least 15% or 20% before purchasing a residence, a 10% deposit mortgage (sometimes called a 90% mortgage) can help you get into your own place sooner. If you’ve been struggling to amass a more substantial deposit, this route could be the helping hand you need.

At The Mortgage Pod, we understand the challenges of building up a deposit and the complexities of the property-buying journey. To simplify matters, this guide breaks down the essentials of 10% deposit mortgages, who might find them useful, and how to boost your odds of being given the green light by a lender.

Understanding 10% Deposit Mortgages

A 10% deposit mortgage enables you to borrow up to 90% of the property’s worth, meaning you only contribute 10% of the residence’s price in advance. For example, if you’re buying a home valued at £300,000, your deposit would be £30,000, while your chosen lender would provide £270,000.

These loans have gained popularity among buyers who have moderate savings but lack the capacity for larger upfront amounts like 20%. Keep in mind, however, that as the borrowing percentage goes up, lenders often impose extra scrutiny. They also tend to introduce higher rates of interest to balance their own risk, given that a 90% mortgage means they’re lending a bigger slice of the property’s value.

Understanding Mortgage Deposits

Before delving further into how 10% deposit mortgages operate, it’s helpful to clarify what a deposit really is. This initial sum not only lowers your borrowing requirement but also serves as evidence to lenders that you’re committed to fulfilling your future mortgage repayments. Typically, the more you provide initially, the more likely you are to secure advantageous deals.

Minimum Deposit Requirements

Most standard mortgages in the UK stipulate at least a 5% deposit, but many lenders and circumstances call for a bigger portion. If you opt for a 10% deposit, you’ll often find that you have a wider selection of mortgage products, more relaxed eligibility checks, and (in many cases) improved interest rates compared to mortgages with a 95% loan-to-value (LTV).

However, even at 10%, you must be prepared for potentially steeper monthly obligations than if you contributed an even higher deposit. Every lender checks affordability to ensure that your monthly bills remain within manageable limits, taking into account the increased interest typical of smaller deposits.

For example:

• 10% Deposit on a £300,000 Property = £30,000
• 15% Deposit on the Same Property = £45,000
• 20% Deposit = £60,000

Why Do I Need a Mortgage Deposit?

A deposit is crucial because it lessens the amount you need to borrow and demonstrates that you’re financially prepared to cover your repayments. Lenders prefer applicants who exhibit both responsibility and stability. Your initial down payment is effectively an investment in the residence itself, reducing their risk and (hopefully) allowing you access to more competitive mortgage offers.

Factors Affecting Deposit Size

The deposit demanded by lenders can change based on a few influences:

• Property Type: Newly built residences can sometimes necessitate a more significant initial payment because lenders may view them as less predictable in terms of future value.
• Your Personal Financial Position: Credit history, steady earnings, and spending habits all play a large part in determining the deposit lenders will accept.
• Lender-Specific Policies: Some providers may specialise in low-deposit mortgages, while others have stricter criteria.

How Do 10% Deposit Mortgages Work?

At their heart, 10% deposit mortgages function like any other: you repay the borrowed amount plus interest over a specific term. The difference lies in the LTV (loan-to-value) ratio—in this case, 90%. Lenders see a higher LTV loan as riskier, so they typically:

• Impose more rigorous affordability checks.
• Provide interest rates that are often higher than those for, say, 75% or 80% LTV.

Example Scenario: Buying a £200,000 property with a 10% deposit means you’d put down £20,000, and a lender would supply the remaining £180,000. Although borrowing more can help you own a home sooner, it also brings heftier interest charges if rates rise.

Eligibility Criteria for a 10% Deposit Mortgage

Qualifying for a 10% deposit mortgage calls for meeting specific requirements, many of which revolve around your capacity to handle the increased borrowing. Lenders typically look for:

1. Favourable Credit History: Evidence of regular bill payments and limited reliance on short-term credit.
2. Stable Earnings: Demonstrated by consistent payslips, and if you’re self-employed, a healthy track record of accounts.
3. Manageable Debt Levels: Too many existing debts will drag down your affordability score.
4. Property Constraints: Some lenders are pickier with the sorts of homes they’re willing to finance, particularly if they consider certain properties a higher risk.

Application Process for a 10% Deposit Mortgage

Getting a 10% deposit mortgage follows a similar approach to any other home loan application:

1. Assess Your Credit Score: A healthy score can strengthen your case and help in securing more appealing rates.
2. Prepare Your Documents: Gather bank statements, proof of earnings, and identification to streamline the process.
3. Examine Lenders: Not every institution provides 10% deposit mortgages, so exploring different options is key.
4. Submit Your Application: Complete the necessary forms, supply all documentation, and await the lender’s assessment.
5. Formal Mortgage Offer: If everything checks out, you’ll receive an offer detailing the proposed terms. Review carefully and sign if you agree.

Note that utilising a broker (like The Mortgage Pod) can help you navigate the array of products on the market and guide you toward a mortgage that suits your circumstances.

Pros of a 10% Deposit Mortgage

• Faster Entry into Homeownership: Rather than waiting until you can save 15% or 20%, a 10% deposit helps you buy sooner.
• Greater Mortgage Choices Compared to 5%: More lenders typically have products at 90% LTV than at 95%.
• Flexibility for Other Outlays: Retaining the difference between a 15-20% deposit and a 10% deposit gives you extra funds for moving costs, maintenance, or an emergency safety net.
• Potentially Better Rates than 95% LTV: Although higher than rates on 75% or 80% LTV, 90% mortgages often come with more attractive rates than 95% options.

Cons of a 10% Deposit Mortgage

• Higher Interest than Larger Deposits: Although you may secure more attractive rates than with a 95% loan, you’ll still face steeper interest compared to, say, an 80% LTV product.
• More Stringent Acceptance Standards: Borrowers must normally exhibit strong creditworthiness to be considered for 90% mortgages.
• Possibility of Falling into Negative Equity: If prices in your area drop, you might end up owing more than your dwelling’s worth.
• Limited Range of Deals: While broader than 95% deals, there may still be fewer options compared to mortgages for borrowers with a 20% or 25% deposit.

Who Could Benefit from a 10% Deposit Mortgage?

A 10% deposit mortgage can be well suited to:

• Potential Homeowners Without a Large Lump Sum: If saving beyond 10% has been an uphill battle, 90% mortgages can offer a quicker route to having your own place.
• Professionals with Steady Income: Those who have decent earnings but lack a huge nest egg might find a 10% deposit more realistic.
• Second Steppers or Upsizers: If you’re selling your current property but have limited equity, a 90% loan can help bridge the gap toward your next purchase.

Are There Any Government Schemes to Assist?

Several government-backed programmes have emerged over the years to help buyers with deposits under 20%. While many are tailored to lower deposits (such as 5%), some may still be relevant if you’re only putting down 10%. If in doubt, it’s wise to discuss these schemes with a professional adviser who can clarify if they apply to your personal situation.

Additional Costs to Factor In

There’s more to purchasing a property than just the deposit. You should prepare for:

1. Legal Fees: Costs relating to conveyancing and other legal checks.
2. Stamp Duty: Depending on your status as a first-time buyer and the home’s purchase price, you might pay none or a certain amount.
3. Survey & Valuation: Lenders often require a valuation, and you may opt for a more thorough survey.
4. Relocation Expenditures: Removals, redecorations, and initial repairs can quickly add up.

Improving Your Chances of Success

To enhance your likelihood of being accepted for a 90% mortgage, it pays to:

• Enhance Your Credit Score: Rectify any mistakes on your report, clear or reduce existing credit balances, and pay bills punctually.
• Keep Debt Under Control: A lower debt-to-income ratio suggests a better capacity to handle new payments.
• Maintain Consistent Earnings: Regular employment with dependable salary slips or strong self-employed accounts will reassure lenders.
• Show Additional Savings: Having spare funds for fees and emergencies signals that you’re prepared for unexpected costs.

Exploring Lender Options

Different banks, building societies, and specialist firms cater to 90% LTV mortgages. It’s vital to shop around to discover a mortgage that suits your personal finances. Important considerations:

• Interest Rates & Fees: Look beyond the headline rate—additional charges can significantly affect the true expense of your loan.
• Flexibility: Features like overpayments or payment breaks might be especially important, depending on your goals.
• Reputation & Service: Research reviews or tap into word-of-mouth recommendations to find a lender that supports its customers properly.

Additional Considerations

• Exchange Deposits: Typically around 10% of the cost of the property, paid once contracts are exchanged. This is a separate step from your mortgage, so ensure your finances align.
• Negative Equity Risk: If house prices shift downward, you may owe more than the property is worth, limiting your ability to remortgage.
• Rental vs. Purchase: Renting may still be the right decision for those not financially or personally ready to buy.
• Upfront Fees: Some mortgages impose arrangement or booking fees; factor these into your overall budget.

Comparing 10% Deposit Mortgages

When shopping for a 90% mortgage, always focus on the details:

• Interest Rates: Even marginal differences in rates can greatly influence monthly bills and the total repaid over time.
• Total Charges: Don’t forget arrangement fees, valuation costs, and early repayment penalties.
• Fixed vs. Variable: A fixed rate offers predictable payments, whereas a variable rate may yield savings if interest rates remain low—but it carries more uncertainty.

Saving for a Mortgage Deposit

If you’re still building towards that 10% figure, consider these strategies:

1. Set Practical Goals: Work out how much you need to save each month and stick to a plan.
2. Budget Carefully: Monitor your everyday outgoings and identify where you can reduce spending.
3. Regular Contributions: Automate transfers into a savings or ISA account as soon as you’re paid.
4. Take Advantage of Specialised Savings Tools: Some accounts offer bonuses or tax benefits for first-time buyers.

Mortgage Deposit and Monthly Repayments

Your deposit size plays a direct part in deciding your monthly costs:

• Larger Deposit = Lower Monthly Repayments: Borrowing less means smaller debt and, typically, less interest accrued.
• More Modest Deposit = Higher Payments: Paying 10% upfront reduces your immediate saving targets compared to 15% or 20%, but your monthly outlay will be bigger.

How Your Deposit Affects Your Monthly Outgoings

Use an online mortgage calculator or consult a broker to see how your deposit changes your monthly figure. Be sure to:

• Factor in Other Fees: Such as arrangement and valuation expenses.
• Discuss Options: Chat to a professional to find a solution that fits your budget.
• Track Total Repayment: Over the full mortgage term, small percentage points on interest can add up massively.

Alternatives to Saving a Large Deposit

If a 10% deposit feels daunting, or you have other plans for your money, you can explore:

• Lower Deposit Mortgages: Some lenders still provide 5% deposit deals, though with higher interest charges.
• Government-Assisted Ownership: Schemes like Shared Ownership can help you purchase a portion of the property while paying rent on the remaining share.
• Family Assistance: Guarantor or family offset mortgages, if available, might reduce your upfront cost requirements.

Options if You Cannot Reach a 10% Deposit

• Guarantor Arrangements: A trusted friend or family member can vouch for you if they meet the criteria.
• Longer Mortgage Terms: Extending the term can shrink monthly outgoings, but be cautious—you’ll pay more interest over time.
• Consult a Mortgage Broker: Professionals can explain less common solutions that might suit your situation.

Conclusion: Is a 10% Deposit Mortgage Right for You?

A 10% deposit mortgage can help you purchase a residence without needing to wait for a 20% deposit. You’ll generally unlock a wider array of deals than with 5% deposit options, though your monthly costs and interest rate will be bigger than if you put down 15% or 20%.

Uncertain whether a 90% mortgage is a fit for your finances? The Mortgage Pod can guide you through your prospects, compare different plans, and steer you towards the best choice for your circumstances. Feel free to get in touch for personalised support and information on every step towards your dream property.

Frequently Asked Questions