60% Deposit Mortgages | Home Buying with a 40% mortgage

Being able to place a substantial deposit on a property can significantly reduce your borrowing costs, secure favourable interest rates, and provide an extra layer of security if prices fluctuate. A 60% deposit mortgage—which equates to borrowing only 40% of the home’s value—can be a game-changer for those who’ve managed to accumulate a large chunk of savings or have ample equity from a prior property sale.

Below, The Mortgage Pod explains what 60% deposit mortgages entail, who could benefit, and how to improve your chances of approval.

Understanding 60% Deposit Mortgages

A 60% deposit mortgage involves the buyer funding 60% of the property’s cost up front, leaving the remaining 40% to be financed by a mortgage lender. For example, if the property is £300,000, you’d provide £180,000, and borrow £120,000 as a 40% mortgage.

Because the loan-to-value (LTV) ratio is only 40%, lenders view such borrowers as lower risk. Consequently, you’re more likely to see enticing interest rates and a broader spectrum of mortgage products than if you were taking on a higher LTV (say, 90% or 95%).

Understanding Mortgage Deposits

A deposit is the slice of a property’s purchase price you pay from your own savings or assets, separate from what you borrow. Essentially, the bigger your deposit, the less you have to finance through a lender—meaning potentially less interest to pay over the mortgage term. A substantial deposit often allows you to access the best mortgage products on the market.

Minimum Deposit Requirements

Most standard residential mortgages in the UK require a minimum deposit of 5%. However, providing a 60% deposit typically grants:

• Lower interest costs
• A simpler approval route (since you’re borrowing less)
• Lower monthly repayments

For Example:

• 60% Deposit on a £300,000 Property = £180,000
• 20% Deposit = £60,000
• 5% Deposit = £15,000

Why Do I Need a Mortgage Deposit?

Deposits serve two primary functions:

1. Reducing Your Borrowed Amount – The more you invest initially, the less you need from a lender, which can reduce interest charges over time.
2. Proving Your Financial Readiness – A substantial deposit signals that you’re serious and financially stable, often leading to more favourable offers.

Factors Affecting Deposit Size

Several elements influence how large a deposit you might provide:

• Property Type – Certain homes (e.g. new-build flats) may require larger deposits.
• Your Finances – Strong credit records and consistent income can make lenders more flexible.
• Specific Lender Policies – Every mortgage provider sets its own deposit thresholds and lending rules.

How Do 60% Deposit Mortgages Work?

Aside from the large lump sum you pay at the outset, 60% deposit mortgages work the same way as other home loans: you repay the borrowed 40%, plus interest, over a chosen term (commonly 25–35 years). But with a lower LTV:

• Interest rates can be notably better.
• Affordability checks are often simpler since you’re borrowing less.

Example: If a property’s price is £400,000 and your deposit is £240,000 (60%), the mortgage covers £160,000. This smaller loan amount could translate into considerably lower monthly payments.

Eligibility Criteria for a 60% Deposit Mortgage

Even if you have a significant deposit, lenders still need to confirm you can keep up with monthly repayments. They typically look for:

1. Healthy Credit Record – Demonstrating prompt payments on existing obligations.
2. Steady Income – A reliable work history, or if self-employed, accurate accounts (usually two years’ worth).
3. Low Debt Levels – Minimised credit card balances or personal loans can increase what you can borrow.
4. Suitable Property – The lender must confirm the property’s value and condition.

Application Process for a 60% Deposit Mortgage

Though the specifics can vary, you’ll generally:

1. Check Your Credit Rating – Correct errors, reduce high debts, and avoid new credit ahead of applying.
2. Gather Documents – Payslips (or self-employed accounts), bank statements, proof of ID, utility bills.
3. Survey Lenders – Each institution’s rates, fees, and eligibility rules differ.
4. Submit Your Application – Provide requested details and documentation for affordability checks.
5. Formal Mortgage Offer – If approved, you’ll receive an offer outlining the loan’s terms and costs.

Enlisting The Mortgage Pod or another mortgage broker can make the process smoother by guiding you toward suitable products and helping you handle the paperwork.

Pros of a 60% Deposit Mortgage

1. Competitive Rates – Borrowing a small percentage of the property’s value can open doors to top-tier deals.
2. Lower Monthly Bills – You’re financing less, so your repayments are often more affordable.
3. Flexibility – There’s generally no shortage of lenders eager to work with lower LTV borrowers.
4. Minimal Negative Equity Risk – Should market prices drop, starting with 40% equity offers a stronger buffer.

Cons of a 60% Deposit Mortgage

1. High Initial Capital Requirement – Saving or obtaining 60% can be challenging in higher-priced areas.
2. Liquidity Constraints – A large deposit ties up your funds, limiting their availability for other investments or emergencies.
3. Still Affected by Market Changes – Severe falls in property value can still impact your equity, though you’re relatively better off than those with higher LTVs.
4. Lender Checks Remain – Even with a big deposit, you must pass credit and affordability tests.

Who Can Benefit from a 60% Deposit Mortgage?

• Existing Homeowners – If you’re downsizing or selling a property with substantial equity, 60% could be feasible.
• Disciplined Savers – Anyone who’s managed to build up savings over time (or via a windfall like inheritance) can enjoy lower borrowing costs.
• Buy-to-Let Investors – For landlords, a higher deposit often means better net returns and a smoother loan approval process.

Are There Any Government Schemes to Assist?

Most government-backed schemes (like Help to Buy) are designed for borrowers with smaller deposits. However, if you’re a first-time buyer, you may still qualify for Stamp Duty relief or other incentives, so it’s worth checking your eligibility.

Additional Costs to Consider

Remember, you’ll face more than just your deposit when buying:

1. Conveyancing/Solicitor Fees – For legal paperwork, property searches, and liaison with the lender.
2. Stamp Duty Land Tax – Depending on the home’s price and your buyer status.
3. Surveys & Valuation – A thorough survey can be helpful and cost more than the basic lender valuation.
4. Moving/Set-Up Expenses – Removal vans, new furniture, or initial repairs.

How to Improve Your Chances of Getting a 60% Deposit Mortgage

• Strengthen Your Credit – Pay down debts, rectify credit file inaccuracies, and avoid missed payments.
• Ensure Stable Income – Lenders want consistency, particularly if you’re self-employed.
• Minimise Outgoings – Smaller monthly commitments on other loans or cards can raise what you’re allowed to borrow.
• Demonstrate Readiness – Showing you have spare funds beyond the deposit to cover fees can boost lender confidence.

Exploring Lender Options

With a 60% deposit, you’ll likely have numerous lenders vying for your business. Key factors when comparing:

• Interest & Fees – A low headline rate might be offset by hefty arrangement charges.
• Product Flexibility – Some deals allow overpayments or payment pauses.
• Customer Feedback – Look up reviews or personal recommendations to gauge a lender’s service.

Additional Considerations

• Deposit Timing – You’ll typically pay around 5–10% of the purchase price when exchanging contracts; ensure your funds are accessible.
• Market Volatility – While you’re better protected than most, property values can still fluctuate.
• Rent vs. Buy – If you haven’t yet reached a 60% deposit, consider waiting or looking at mortgages that work with a smaller deposit.
• Arrangement Fees – Mortgage deals may come with booking or arrangement fees, which add to initial outlays.

Comparing 60% Deposit Mortgages

When weighing up deals:

1. Fixed vs. Variable Rates – Fixed rates grant payment certainty, whereas variable rates might be cheaper initially but can rise.
2. Total Charges – Look beyond interest; arrangement, valuation, and early repayment fees can affect overall value.
3. Mortgage Term – Spreading the loan over more years lowers monthly bills but increases total interest.

Saving for a Mortgage Deposit

If you’re still accumulating funds to reach 60%:

• Set Milestones – Calculate how much you can reasonably save each month.
• Create a Budget – Track your outgoings to find spending reductions.
• Consider Savings Products – ISAs or other accounts may offer tax advantages or higher returns.
• Boost Income – Part-time work, freelance gigs, or overtime could fast-track your deposit goal.

Mortgage Deposit and Monthly Payments

Your deposit amount has a direct effect on your repayment commitments:

• Larger Deposit = Smaller Loan – Generally leading to reduced monthly costs.
• Smaller Deposit = Bigger Loan – Potentially resulting in higher rates and bigger monthly bills.
• Interest Rate Sensitivity – Even small changes in rates can accumulate over a decade or more.

How Your Deposit Affects Your Monthly Outgoings

• Try Mortgage Calculators – Enter different deposit percentages to see changes in monthly costs.
• Talk to a Broker – A professional can illustrate how an extra 5–10% deposit might dramatically cut your total interest.
• Long-Term Perspective – Over 25+ years, marginal interest savings can amount to thousands of pounds.

Alternatives to Saving a Large Deposit

If 60% isn’t feasible right now:

• Lower Deposit Mortgages – 5–20% deposit deals are available (albeit with higher monthly repayments).
• Shared Ownership – Part-buy, part-rent on a property.
• Family Support – Guarantor or gifted deposits can reduce how much you need to save.

Options if You Cannot Manage a 60% Deposit

• Longer Mortgage Terms – Spreading payments over 30 years cuts monthly costs but adds to overall interest.
• Guarantor Arrangements – A family member’s backing could help you access better rates.
• Broker Assistance – Specialist advisers might propose niche deals or alternative schemes that suit your situation.

Conclusion: Is a 60% Deposit Mortgage Right for You?

A 60% deposit mortgage offers compelling advantages, including potentially low interest rates, manageable monthly outgoings, and a strong hedge against negative equity. That said, building or obtaining such a large deposit can be a challenge, and you’ll still need to satisfy standard lender checks.

Still unsure? The Mortgage Pod is here to help. We’ll compare an array of products, evaluate your finances, and recommend whether a 40% mortgage truly suits your circumstances. Don’t hesitate to reach out for tailored advice on your path to homeownership.

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