15% Deposit Mortgages | Home Buying with an 85% mortgage

Building up enough savings for a house deposit is a significant milestone, no matter whether you’re a first-time buyer or have some property experience. While some believe they need 20% or more to secure a decent mortgage deal, a 15% deposit mortgage (often referred to as an 85% mortgage) can offer a flexible route into homeownership. If you’ve managed to save more than the minimum 5–10% but can’t stretch to 20%, this could be the perfect middle ground.

At The Mortgage Pod, we appreciate the effort that goes into saving for a deposit and the stress that can accompany the property-buying journey. In this overview, we’ll break down how 15% deposit mortgages work, who might find them beneficial, and what you can do to strengthen your application.

Understanding 15% Deposit Mortgages

A 15% deposit mortgage means you provide 15% of the total purchase price upfront, with your chosen lender supplying the remaining 85%. For instance, if you plan to buy a home for £300,000, your deposit would be £45,000, and the mortgage would cover £255,000.

Compared to lower deposit options (like 5% or 10%), this arrangement can give you access to improved interest rates and a greater variety of deals. You’ll still need a substantial sum of money saved, but you won’t have to reach the typically more demanding 20% threshold.

Understanding Mortgage Deposits

A deposit is the amount of money you personally contribute towards the property’s price. The higher your deposit, the less you need to borrow, which generally results in lenders offering more competitive interest rates. A larger deposit also demonstrates your commitment to the purchase, reassuring lenders that you’re less likely to default.

Minimum Deposit Requirements

Most mainstream lenders require at least a 5% deposit for standard residential mortgages in the UK. If you opt for a 15% deposit, you’ll often find:

• A broader selection of lenders willing to consider your application.
• Potentially lower interest rates than those available for 90% or 95% mortgages.
• Less stringent eligibility checks than higher loan-to-value (LTV) mortgages.

Even though your monthly payments may be lower than with a 5–10% deposit (due to a reduced loan balance), you must still be sure you can comfortably manage the repayments over the full term of the mortgage.

For Example:

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

Why Do I Need a Mortgage Deposit?

Mortgage deposits serve two main purposes. Firstly, they lower the overall sum you need to borrow, reducing the interest you might pay over your mortgage term. Secondly, by investing your own funds, you demonstrate reliability and financial readiness to prospective lenders. A bigger deposit typically puts you in a stronger negotiating position when discussing rates and overall mortgage terms.

Factors Affecting Deposit Size

A variety of influences can affect how much deposit is needed:

1. Type of Property: New-build homes may come with specific deposit recommendations.
2. Personal Financial Circumstances: Credit score, any outstanding debts, and employment stability will all help determine the deposit you need.
3. Lender-Specific Policies: Some institutions specialise in low deposit mortgages, whereas others concentrate on lower LTV ratios.

How Do 15% Deposit Mortgages Work?

These mortgages aren’t much different from other home loans—you borrow an amount from the bank or building society and pay back the principal plus interest over a set period. The standout element is the 85% LTV, meaning you borrow 85% of the purchase price.

Key Points:

• A higher deposit (15%) typically offers more enticing rates than smaller deposit options.
• You’re still borrowing a substantial portion (85%), so lenders require robust evidence of your financial health.

Example: If you buy a £200,000 property with a 15% deposit of £30,000, you’d need a mortgage of £170,000. Over the lifetime of the loan, the interest you pay can vary, but it’s usually less than if you’d taken out a 95% mortgage.

Eligibility Criteria for a 15% Deposit Mortgage

As with any mortgage, lenders look for evidence of financial stability and responsible money management. Typical areas of focus include:

1. Credit Record: A history of timely repayments is crucial.
2. Employment Background: Regular, ongoing employment or, if self-employed, stable business accounts.
3. Income and Debt Levels: Your outgoings and existing debts affect affordability.
4. Property Suitability: Lenders may have stipulations about certain types of structures or locations.

Application Process for a 15% Deposit Mortgage

While the precise steps can differ between lenders, you’ll usually need to:

1. Evaluate Your Credit File: Correct any mistakes and try to strengthen your score before applying.
2. Gather Your Documents: Include payslips, tax returns (if self-employed), and bank statements.
3. Investigate Lender Deals: Look for 85% LTV products across various providers.
4. Submit an Application: Provide documentation and details. The lender will assess your finances to see if you can handle the repayments.
5. Formal Offer: If approved, you’ll receive a mortgage offer. Review it carefully before accepting.

Working with a mortgage adviser, like The Mortgage Pod, can streamline this process by identifying lenders and products best suited to your situation.

Pros of a 15% Deposit Mortgage

1. Improved Interest Rates: Compared to 5% or 10% deposit deals, 15% deposit mortgages may come with more attractive rates.
2. Broader Product Choices: An 85% LTV is often viewed more positively by lenders than higher LTV figures.
3. Lower Monthly Repayments: You’ll be borrowing less money than if you only had a 5% or 10% deposit, so your monthly bills may be more manageable.
4. Reduced Risk of Negative Equity: Owning a larger share of your property reduces the chance that your mortgage balance will exceed the home’s value if the market dips.

Cons of a 15% Deposit Mortgage

1. Substantial Upfront Outlay: Pulling together 15% can be challenging if you’re on a modest salary or have other financial responsibilities.
2. Not the Lowest Rates: While they’re better than 90–95% mortgage rates, they may still be higher than those offered at 75–80% LTV.
3. Stricter Criteria Than Larger Deposits: Although you’ll have more options compared to lower deposit mortgages, some lenders still offer better terms to those with 20–25% or more.
4. Potential for House Price Fluctuations: Even though you have more equity than someone with 5% or 10%, a sharp decline in property values could still pose problems if you want to sell or remortgage.

Who Can Benefit from a 15% Deposit Mortgage?

• Buyers Transitioning from Renting: If you’ve been able to build up decent savings, but not enough for 20%, 15% could be the sweet spot.
• Upsizers: Homeowners moving to a larger place might find they have the equity to manage a 15% deposit on a more expensive property.
• First-Timers with Strong Savings: Some first-time buyers may have taken advantage of savings schemes or lived with parents longer to amass a 15% deposit.

Are There Any Government Schemes to Assist?

Most government initiatives are either aimed at helping people with extremely small deposits (5%) or those in specific circumstances (like Shared Ownership). That said, it’s worth talking to an adviser to see if you can still qualify for certain programmes or concessions, such as reduced Stamp Duty for first-time buyers.

Additional Costs to Consider

Beyond the deposit, you’ll need to account for:

1. Conveyancing Fees: Covering legal documentation and property searches.
2. Stamp Duty Land Tax: Depending on the cost of the home and your buyer status.
3. Surveys/Valuations: Costs vary, and more comprehensive reports can be pricier.
4. Moving Expenditures: Hiring a removals service or buying new furnishings.

How to Improve Your Chances of Getting a 15% Deposit Mortgage

• Enhance Your Credit Score: Pay bills promptly, clear outstanding balances where possible, and avoid new debt.
• Keep Debt-to-Income Ratio Low: Lenders prefer borrowers with manageable levels of debt.
• Secure a Consistent Income: Whether employed or self-employed, demonstrate reliable earnings with supporting paperwork.
• Budget for Extra Expenses: Show you can comfortably handle additional costs besides the mortgage.

Exploring Lender Options

Different lenders cater to varying borrower profiles and deposit sizes. Important factors to consider:

• Interest Rates & Product Fees: A low headline rate could be overshadowed by high arrangement fees or exit penalties.
• Repayment Flexibility: Some providers offer overpayment allowances, payment breaks, or offset features.
• Reputation: Checking reviews and seeking personal recommendations can help gauge a lender’s service levels.

Additional Considerations

• Deposit on Exchange: You might need a significant portion of your deposit when exchanging contracts, so ensure your funds are ready.
• Market Fluctuations: If property prices drop sharply, even a 15% deposit may not protect you fully from negative equity.
• Rent vs. Buy: It might still be cheaper or more practical to rent temporarily if you’re unsure about your short-term plans.
• Upfront Mortgage Fees: Arrangement or booking fees can add to your initial outlay.

Comparing 15% Deposit Mortgages

When assessing different mortgages, weigh up:

1. Interest Rates: Even a fraction of a percentage point can significantly affect overall costs.
2. Total Charges: Look out for valuation fees, product fees, and any penalties.
3. Fixed vs. Variable: A fixed rate provides certainty, while a variable rate can be lower but comes with more unpredictability.

Saving for a Mortgage Deposit

If you’re aiming to reach 15%:

1. Set Targets: Work out monthly saving goals and stick to a plan.
2. Review Spending: Identify costs you can reduce or eliminate.
3. Automate Savings: Direct a portion of your income into a dedicated savings or ISA account.
4. Boost Earnings: Consider extra work or a side business, if feasible, to enhance your savings rate.

Mortgage Deposit and Monthly Payments

Your deposit level shapes how much you borrow, which in turn affects your monthly bills:

• Bigger Deposit = Smaller Loan: Often leading to cheaper monthly bills.
• Smaller Deposit = Larger Loan: You’ll pay more each month and could face higher interest charges.
• Interest Rates: Varying rates have a big impact on the cost of borrowing over 25 or 30 years.

How Your Deposit Affects Your Monthly Bills

• Use a Mortgage Calculator: Plug in different deposit sizes and interest rates to see how your payments might change.
• Speak with a Mortgage Broker: An adviser can guide you through the deals best suited to your situation.
• Keep a Long-Term View: Consider the overall cost, not just the immediate payment.

Alternatives to Saving a Larger Deposit

Should 15% prove too high to reach right now, other routes include:

• 5% or 10% Deposit Mortgages: Although your interest rate and monthly payments may be higher.
• Shared Ownership: Buying a stake in a property and paying rent on the rest.
• Family Assistance: Guarantor or family offset mortgages can reduce how much you need up front.

Options if You Cannot Manage a 15% Deposit

• Guarantor Mortgages: A parent or close relative may pledge security if you have a smaller deposit.
• Extended Mortgage Terms: Spreading repayments over 30–35 years might reduce monthly costs (though increases total interest).
• Professional Advice: An experienced broker can highlight products or schemes you might not have considered.

Conclusion: Is a 15% Deposit Mortgage Right for You?

Opting for a 15% deposit mortgage can give you access to a wide range of lenders and products, along with fairly competitive interest rates. You’ll need a significant sum to get started, but in return, you might reduce your monthly repayments and lessen the risk of negative equity.

Still unsure? The Mortgage Pod is here to help. We can guide you through the numerous products on the market, discuss your financial circumstances, and support you in making the right decisions. Get in touch to learn more about 85% mortgages and whether they suit your plans for homeownership.

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