Putting together the funds for a home deposit can be a significant hurdle. However, if you’re in a position to cover 85% of a property’s purchase price up front, you’d only need a 15% mortgage for the remainder. This arrangement can open up advantageous loan terms, lower monthly costs, and a robust safety net if property values happen to wobble.
Below, The Mortgage Pod walks through how 85% deposit (15% mortgage) deals work, why they might be appealing, and what steps to take if you’re aiming for this deposit level.
Understanding 85% Deposit Mortgages
An 85% deposit mortgage means you supply 85% of a home’s price from your own resources, leaving the remaining 15% to be financed by the mortgage lender. For instance, if the property you want costs £300,000, an 85% deposit would be £255,000, and the mortgage would cover £45,000.
With such a low loan-to-value (LTV) ratio of 15%, you’ll typically be seen as a low-risk borrower. This can lead to more agreeable interest rates, potentially simpler eligibility checks, and a wider selection of products than those with higher LTV requirements.
Understanding Mortgage Deposits
When you purchase a home, the deposit is the chunk of the property’s price that you provide in cash, separate from what you borrow. A significant deposit not only reduces how much you owe overall, it can also help you secure a more competitive mortgage deal—particularly if your deposit is substantially above the minimum required.
Minimum Deposit Requirements
Many lenders in the UK start at around 5% deposit on standard residential deals. If you’re able to put down 85%, you:
- Lower the perceived risk for the lender
- Potentially lock in better interest rates
- Keep your monthly repayments more manageable
For Example:
- 85% Deposit on a £300,000 Property = £255,000
- 10% Deposit = £30,000
- 5% Deposit = £15,000
Why Do I Need a Mortgage Deposit?
Having a deposit serves two main functions:
- Reducing Your Overall Borrowing: The larger the deposit, the less you owe—and the less interest you’ll typically pay.
- Reassuring Lenders: By showing you have considerable savings, you position yourself as a lower-risk borrower who’s less likely to default.
Factors Affecting Deposit Size
What you decide to commit as a deposit can rely on:
- Property Type: Certain homes (e.g., new builds) might carry stricter deposit rules.
- Your Personal Finances: A robust credit score, dependable income, and minimal debt often make lenders more flexible.
- Lender Policies: Each provider sets distinct deposit thresholds and loan criteria.
How Do 85% Deposit Mortgages Work?
Beyond paying a substantial deposit up front, an 85% deposit mortgage operates like any standard home loan: you repay the 15% mortgage, plus interest, over an agreed term (commonly 25–35 years). Thanks to the low LTV:
- Interest rates can be notably competitive.
- Affordability checks may be more straightforward, since you need a smaller loan.
Scenario: If a property is £350,000 and you have an 85% deposit of £297,500, you’d only require a £52,500 mortgage—which could translate into much lower monthly payments than if you had to borrow 80% or 90% of the property’s value.
Eligibility Criteria for an 85% Deposit Mortgage
Even with a major deposit, lenders still conduct standard checks. They’ll look for:
- Strong Credit History: Evidence of timely bill and credit repayments.
- Income Consistency: Salaried workers should show payslips; self-employed applicants may need two years of accounts.
- Debt-to-Income Ratio: Minimal existing debts reassure lenders about your ability to handle new monthly obligations.
- Property Suitability: The house or flat must align with the lender’s valuation and condition guidelines.
Application Process for an 85% Deposit Mortgage
While each lender has unique steps, you can generally expect:
- Credit Review: Resolve errors or outstanding debts and maintain on-time bill payments.
- Prepare Documentation: Bank statements, payslips, ID, and address proof are typically needed.
- Search Lenders: Interest rates, product features, and fee structures vary. A broker could help you locate ideal matches.
- Submit Application: Provide your information and documents for affordability checks.
- Formal Offer: If approved, you’ll receive a mortgage offer outlining conditions like rate, term length, and any related fees.
Collaborating with a mortgage broker, such as The Mortgage Pod, can speed up the process and ensure you find products suited to an 85% deposit.
Pros of an 85% Deposit Mortgage
- Competitive Interest Rates: A 15% mortgage typically appeals to lenders, so they’re often willing to provide reduced rates.
- Smaller Loan Amount: You’ll have less to repay monthly, helping manage your household budget.
- Wider Product Selection: Low LTV applicants usually have more lender options.
- Lower Negative Equity Risk: If property values fall, you’ve already covered a large share of the cost.
Cons of an 85% Deposit Mortgage
- Large Initial Cost: Amassing 85% of the purchase price may be unfeasible for many.
- Tied-Up Funds: Such a big investment in the property can lessen liquid savings or investment opportunities.
- Still Subject to Market Swings: Although you’re safer than most, a sizeable property price drop can affect your equity.
- Must Pass Standard Checks: Even with an extensive deposit, lenders still apply credit and affordability vetting.
Who Can Benefit from an 85% Deposit Mortgage?
- Seasoned Homeowners: Equity from selling a property might allow an 85% deposit for your new home.
- Diligent Savers: If you’ve built a considerable nest egg over time or received a sizeable gift (e.g., inheritance).
- Investors: While buy-to-let criteria differ, a hefty deposit often aids in getting more favourable rental yields.
Are There Any Government Schemes to Assist?
Most initiatives (like Help to Buy) target smaller deposits, so you might not need such schemes at this high deposit level. That said, first-time buyers might still qualify for Stamp Duty relief if the purchase price meets threshold requirements.
Additional Costs to Consider
A home purchase involves more than just saving an 85% deposit:
- Conveyancing & Legal Fees: These handle property searches, contracts, and registering ownership.
- Stamp Duty Land Tax: Depending on how much the property costs and your buyer status.
- Valuations & Surveys: A basic valuation might be required, and a more in-depth survey can offer extra assurance.
- Relocation & Initial Expenses: Removal costs, refurbishments, and new furnishings.
How to Improve Your Chances of Getting an 85% Deposit Mortgage
- Enhance Your Credit Score: Pay down or clear existing obligations, check your report for inaccuracies, and be punctual with payments.
- Ensure Steady Earnings: Lenders prefer seeing proof of consistent income, which is particularly crucial if you’re self-employed.
- Minimise Other Debts: The less you owe, the easier it will be to meet affordability requirements.
- Show Liquid Reserves: Being prepared for conveyancing fees and keeping some emergency funds can boost lender confidence.
Exploring Lender Options
As a low LTV borrower (15% mortgage), you’ll have a broad selection of lenders. Points to compare:
- Interest Rate & Fees: A headline-low rate might come with hefty arrangement fees—calculate overall costs carefully.
- Flexibility: Some mortgages allow for overpayment or payment holidays, which might be important depending on your plans.
- Reputation: Online reviews or personal recommendations could alert you to a lender’s service quality.
Additional Considerations
- Deposit on Exchange: Often 5–10% of the sale price is due when exchanging contracts, so ensure a portion of your funds is immediately accessible.
- Property Market Flux: Even with an 85% deposit, external factors like interest rate shifts or local price changes still matter.
- Rent vs. Buy: If 85% isn’t achievable yet, consider whether renting temporarily could allow you to save further or explore lower LTV deals.
- Product Fees: Some mortgages attach arrangement or booking fees, adding to your initial outlay.
Comparing 85% Deposit Mortgages
When reviewing potential products:
- Fixed vs. Variable: A fixed rate offers stable monthly bills, whereas variable rates may start lower but can climb.
- Product and Early Repayment Fees: Low advertised rates can be offset by high charges, so check the fine print.
- Term Length: Stretching payments over more years cuts monthly costs but increases total interest paid.
Saving for a Mortgage Deposit
If you haven’t yet saved 85%:
- Set Milestones: Plan how much you’ll set aside each month.
- Evaluate Spending: Identify areas where you can comfortably reduce your outgoings.
- Use Savings Tools: Certain accounts, like ISAs, might offer bonuses or better returns.
- Boost Income: Consider side gigs, overtime, or freelance work to grow your deposit more quickly.
Mortgage Deposit and Monthly Payments
Your deposit size directly shapes your mortgage costs:
- Bigger Deposit = Smaller Loan: Leading to cheaper monthly bills and typically lower interest.
- Smaller Deposit = Larger Loan: Higher interest rates and heftier repayments.
- Impact of Interest Rate Changes: Even a small rate difference can add up significantly over decades.
How Your Deposit Affects Your Monthly Outgoings
- Try a Mortgage Calculator: Enter varying deposit percentages to see how monthly bills change.
- Broker Input: A professional can show you how pushing from, say, 80% to 85% deposit might yield real-term savings.
- Long-Term Outlook: Over 25–30 years, small interest fluctuations can save—or cost—thousands of pounds.
Alternatives to Saving a Large Deposit
If 85% is out of reach:
- Lower Deposit Mortgages: Many lenders offer deals at 5–20%, though with higher monthly obligations.
- Shared Ownership: Buy a slice of the home while renting the remainder.
- Family-Assisted Mortgage: Guarantors or offset deals may help secure better rates if your deposit is smaller.
Options if You Cannot Manage an 85% Deposit
- Extended Terms: Spreading the loan over more years trims monthly bills (but elevates total interest).
- Guarantor Mortgages: A relative’s backing could help if you’re short on deposit or credit strength.
- Consult an Adviser: A mortgage broker may identify lesser-known or specialist products that align with your finances.
Conclusion: Is an 85% Deposit Mortgage Right for You?
A 85% deposit mortgage (meaning you only need a 15% mortgage) can deliver reduced monthly payments, friendlier interest rates, and a shield against market swings. Naturally, building such a large deposit can be challenging, and you’ll still face normal credit checks and lender eligibility requirements.
Still weighing it all up? The Mortgage Pod can help you assess your circumstances, compare mortgage products, and decide if a 15% mortgage truly fits your homeownership goals. Don’t hesitate to get in touch for professional, tailored support on your journey to securing the right property.
Frequently Asked Questions
Can I secure an 85% deposit mortgage if I’m self-employed?
Yes. While having a substantial deposit helps, you’ll still need to present solid trading records (often two years of accounts), a respectable credit profile, and proof you can consistently meet repayments.
Are 85% deposit mortgages solely for existing homeowners?
Not at all. First-time buyers can also take advantage if they’ve saved diligently or received a lump sum. Lenders still perform their usual checks to ensure affordability and creditworthiness.
How does a falling property market affect me?
With 85% of the home’s price paid already, you’re better insulated than many borrowers. A steep drop might still erode equity, but you’re far less likely to go into negative equity compared to someone with a 5–10% deposit.
Can I remortgage to an even lower LTV later?
Absolutely. Overpayments or rising property values can drop your LTV further, potentially unlocking even more attractive interest rates when remortgaging.
