If you’re in a position to cover 80% of a property’s purchase price with your own funds—leaving just 20% for the mortgage lender to finance—you may be in line for some notable perks. A 20% mortgage (equivalent to an 80% deposit) can often mean lower interest rates, reduced monthly outgoings, and a buffer if property prices were to fall.
Below, The Mortgage Pod dives into what it means to have an 80% deposit mortgage, the benefits, and what steps you can take if you’re aiming for this deposit level. Let’s get started!
Understanding 80% Deposit Mortgages
An 80% deposit mortgage means you contribute 80% of the home’s overall cost, with the remaining 20% provided by your chosen lender. So, for a £300,000 property, an 80% deposit would be £240,000, leaving £60,000 to borrow.
Because you’re seeking just 20% of the property’s value from the mortgage provider, the loan-to-value (LTV) ratio is relatively small. Lenders generally deem such arrangements to be low risk, translating into potentially more favourable interest rates, simpler approval checks, and a healthy supply of mortgage product choices.
Understanding Mortgage Deposits
A mortgage deposit is the portion of a property’s price you pay yourself, separate from the amount borrowed from a lender. This deposit not only reduces the size of your mortgage but shows lenders that you’re financially prepared and less likely to default on the loan.
Minimum Deposit Requirements
Many UK mortgage lenders start with a 5% minimum deposit. Opting for an 80% deposit, however, puts you in a unique position:
- Lower risk for the lender, which can lead to better rates
- Reduced monthly repayments, as you borrow a smaller slice of the home’s total value
- Potentially faster approval, given the strong signal of financial stability
For Example:
- 80% Deposit on a £250,000 Property = £200,000
- 10% Deposit = £25,000
- 5% Deposit = £12,500
Why Do I Need a Mortgage Deposit?
Deposits fulfil two main goals:
- They cut your borrowing needs, which can reduce the total interest you pay over the mortgage’s life.
- They demonstrate reliability, showing lenders you’re invested in the purchase and thus less of a credit risk.
Factors Affecting Deposit Size
Several variables can guide how much deposit you can (or want to) provide:
- Type of Home: Some lenders expect bigger deposits for new-build flats or unusual properties.
- Personal Finances: A solid credit history and stable earnings can lead to more deposit flexibility.
- Individual Lender Policies: Each mortgage provider has its own deposit thresholds and lending requirements.
How Do 80% Deposit Mortgages Work?
In essence, an 80% deposit mortgage functions like any other. You’ll repay the 20% borrowed plus interest over your mortgage term—often between 25 and 35 years. But thanks to the reduced LTV:
- Interest rates are typically lower, reflecting a smaller risk to lenders.
- Affordability checks can be more straightforward, since you’re borrowing a modest amount.
Scenario: If a property is £400,000 and you’ve saved £320,000 (80% deposit), you’d require just £80,000 from the lender. Your monthly mortgage bills are likely to be quite manageable.
Eligibility Criteria for an 80% Deposit Mortgage
Even with a large deposit, lenders expect confirmation that you can keep up repayments. They check:
- Credit Profile: Do you have a track record of paying off bills and credit on time?
- Income Stability: Lenders want consistent earnings—self-employed applicants generally need at least two years of accounts.
- Existing Debts: The fewer your outstanding balances, the more comfortable lenders feel.
- Property Constraints: Some lenders avoid certain builds or areas, even at low LTVs.
Application Process for an 80% Deposit Mortgage
While each lender has unique nuances, the overall procedure is:
- Review Your Credit: Rectify report errors and reduce high balances before applying.
- Compile Key Documents: Usually bank statements, payslips (or self-employed accounts), proof of ID, and utility bills.
- Compare Lenders: Different mortgage rates, fees, and terms can vary widely—consider a broker for guidance.
- Submit Application: Provide the requested info and await the lender’s affordability checks.
- Formal Offer: If approved, you’ll receive a mortgage offer outlining the terms, fees, and any special conditions.
A mortgage broker—like The Mortgage Pod—can streamline the search for lenders, helping you find a deal suited to your 80% deposit aim.
Pros of an 80% Deposit Mortgage
- Favourable Interest Rates: Borrowing just 20% often secures a more advantageous rate.
- Reduced Monthly Payments: A smaller loan means potentially lighter monthly bills.
- Lower Risk of Negative Equity: Should property values decline, you’d still hold significant equity.
- Wider Array of Mortgage Deals: Lenders typically welcome low LTV borrowers with multiple product options.
Cons of an 80% Deposit Mortgage
- Large Upfront Cash Requirement: Accumulating 80% can be daunting, especially in higher-priced locales.
- Limited Liquidity: Putting much of your capital into a property may reduce cash on hand for other needs.
- House Price Volatility: While you have a good cushion, severe market drops can still affect your overall equity.
- Standard Checks Still Apply: Having a big deposit doesn’t waive credit or income vetting.
Who Can Benefit from an 80% Deposit Mortgage?
- Homeowners Switching or Downsizing: Capital from a property sale might cover 80% of your new purchase.
- Buyers with Substantial Savings: Inheritance, savings, or other windfalls could make an 80% deposit feasible.
- Landlords/Buy-to-Let: Although criteria differ, a large deposit can mean stronger rental profits and smoother approvals.
Are There Any Government Schemes to Assist?
Government support typically targets those with smaller deposits (like 5% or 10%), so if you’re going for 80%, you probably don’t need that help. However, first-time buyers meeting specific thresholds might still qualify for Stamp Duty relief. It’s worth checking whether you fit any current scheme criteria.
Additional Costs to Consider
Buying a home goes beyond saving an 80% deposit. Prepare for:
- Conveyancing & Legal Fees: Necessary for property searches, contracts, and official documentation.
- Stamp Duty Land Tax: Calculated based on property price and buyer status.
- Surveys & Valuations: A basic valuation may be mandated by the lender, while more detailed surveys cost extra.
- Moving & Initial Expenses: Removal services, repairs, and furnishing.
How to Improve Your Chances of Getting an 80% Deposit Mortgage
- Bolster Your Credit Score: Pay off outstanding debts, avoid late payments, and fix credit file errors.
- Show Stable Earnings: Continuity in employment or well-kept self-employed accounts help prove affordability.
- Minimise Outgoings: Lenders look favourably upon applicants with relatively modest monthly commitments.
- Plan for Miscellaneous Fees: Prove you have funds beyond the deposit to cover other property-buying costs.
Exploring Lender Options
As someone seeking a low LTV mortgage, you’ll likely find plenty of lenders open to your application. But watch for:
- Interest & Product Fees: A headline rate may look great, but arrangement fees can complicate the total cost.
- Flexibility: Some products allow overpayments or payment holidays—features that might matter to you.
- Service Quality: Online reviews or personal recommendations can shed light on a lender’s customer care.
Additional Considerations
- Deposit Timing: Typically, 5–10% is paid at exchange of contracts, so ensure some of your deposit is quickly accessible.
- Economic Trends: Even with 80% equity, external market factors (like interest rate shifts) can affect your overall outgoings.
- Rent vs. Buy: If 80% is just out of reach, you might consider renting a bit longer to save more or explore a smaller deposit route.
- Mortgage Arrangement Costs: Some deals tack on booking or arrangement fees, which should be factored into your upfront costs.
Comparing 80% Deposit Mortgages
When weighing different mortgage products:
- Fixed or Variable Rates: Fixed rates offer certainty, while variable rates might start lower but can fluctuate.
- Overall Fees: Beyond the annual percentage rate (APR), watch for valuation, exit, or early repayment fees.
- Mortgage Terms: Longer terms lower monthly bills but increase the total interest over the loan’s lifespan.
Saving for a Mortgage Deposit
If you haven’t got 80% yet:
- Set Targets: Work out how much to save monthly to reach your deposit figure.
- Streamline Spending: A thorough budget may uncover expenses you can reduce or cut.
- Use Savings Accounts or ISAs: Some accounts offer perks or better interest rates for diligent savers.
- Seek Extra Income: Side gigs, overtime, or freelance projects can accelerate deposit accumulation.
Mortgage Deposit and Monthly Payments
Your deposit’s size directly influences your mortgage bill:
- Higher Deposit = Lower Loan: Typically leads to smaller monthly outgoings and better interest deals.
- Lower Deposit = Bigger Mortgage: Often means costlier monthly payments and higher interest.
- Interest Rate Differences: Even a small shift in interest can stack up considerably over 25–30 years.
How Your Deposit Affects Your Monthly Outgoings
- Run the Numbers: An online mortgage calculator or broker advice can show how deposits from 10% to 80% change your monthly payments.
- Consider the Long Haul: A slightly better rate on a big mortgage can translate to substantial total savings over decades.
- Look Out for Overpayments: If you get a good rate, you might choose to make extra payments, further reducing interest costs.
Alternatives to Saving a Large Deposit
If you decide 80% is beyond reach right now:
- Lower Deposit Mortgages: Start with 5–20%, though you’ll face heavier monthly fees.
- Shared Ownership: Buy a portion of the property, paying rent on the remaining part.
- Family Guarantor: A relative’s support might help reduce your deposit requirement or enhance mortgage terms.
Options if You Cannot Manage 80% Deposit
- Extend Your Mortgage Term: Spreading out repayments could shrink monthly bills (but raises total interest).
- Guarantor Mortgages: Someone else’s financial backing can bolster your application and reduce the deposit you need.
- Broker Assistance: Professionals can uncover less obvious or specialist deals you might not find alone.
Conclusion: Is an 80% Deposit Mortgage Right for You?
A 80% deposit mortgage (borrowing 20%) can open the door to some of the best interest rates and a comfortable cushion against real-estate market shifts. That said, gathering or allocating such a large upfront sum isn’t always straightforward, and you’ll still be subject to typical lender evaluations of credit and earnings.
Still deciding? The Mortgage Pod can help you compare lenders, iron out the application details, and decide if a 20% mortgage truly meets your needs. Get in touch for tailored advice on taking the next step towards a home where you hold the majority share from the start.
Frequently Asked Questions
Can I get an 80% deposit mortgage if I’m self-employed?
Yes, but you’ll still need clear financial records—usually two years of accounts—and a solid credit history. A big deposit helps, but it doesn’t bypass lenders’ standard checks.
Are 80% deposit mortgages only for second-time buyers?
No. First-time buyers who’ve saved aggressively or received a large sum (like a gift or inheritance) can also consider this option, subject to typical lender conditions.
What happens if property values drop significantly?
An 80% deposit is an excellent equity buffer, so it’s less likely you’ll go into negative equity. That said, substantial price drops can still reduce the value of your stake in the home.
Can I move to an even lower LTV mortgage later?
Absolutely. If your home’s value rises or you make overpayments, you could remortgage at a lower LTV and potentially unlock even better interest rates.
