If you’re thinking of buying a property, the deposit will be one of the main factors.
In short, a mortgage deposit refers to the upfront amount of money you contribute towards purchasing a property. In this guide, we’ll give you an overview of what types of mortgage deposits may be accepted and how it all works!
How Much Deposit Do I Need to Get a Mortgage?
The amount of deposit you need varies depending on factors such as the property price, lender criteria, and your financial circumstances. Generally, lenders require a minimum deposit of 5% of the property purchase price. However, depending on other criteria such as credit score, you may be required to use a higher percentage.
It is also possible to buy a property without a deposit at all. That’s right, there is now a 0% deposit mortgage, as well as a £5,000 deposit option, although these options are very limited.
How Does a Mortgage Deposit Work?
When you provide a deposit, it reduces the amount you need to borrow from the lender. The deposit acts as a down payment on the property and demonstrates your commitment to the purchase.
What Deposit Sources Are Acceptable?
When it comes to mortgage deposits, there are many different sources considered acceptable, such as the following:
- Savings: Bank statements will need to be provided to show the accumulation of savings.
- Gifted Deposit: From family members or even friends. A signed declaration will be required.
- Proceeds from the Sale of a Property: Often referred to as “cash from sale.”
- Inheritance: Evidence will be required, but it’s a perfectly acceptable source of deposit.
- Personal Loan: Although options are limited, some lenders will allow a personal bank loan to be used as your deposit. The loan would need to be factored into affordability.
- Government Schemes: Such as Help-to-Buy.
Can I Use a Gift as a Deposit?
Yes, you can use a monetary gift from family or friends as a deposit. Lenders usually require a gifted deposit declaration confirming that the money does not need to be repaid and that it is a non-returnable gift.
Can I Use a Bank Loan as a Deposit?
Although your lending options will be limited if you wish to use a personal loan as your deposit, it is still an acceptable source of deposit with some lenders and can provide a great solution for certain scenarios. As with any unsecured lending, this will affect your affordability assessment and needs to be considered carefully. We recommend consulting a professional mortgage broker, such as our team here, before committing to any new unsecured borrowing.
How Can I Save for a Deposit?
Saving for a deposit requires discipline and a sound financial plan. Strategies can include:
- Setting a budget
- Cutting expenses
- Increasing savings contributions
- Exploring options like the Help to Buy ISA or Lifetime ISA
Can I Get a Mortgage with a 0% Deposit?
Yes, although lending options will be limited if you wish to purchase a property with a 0% deposit, it is still a possible option. You can expect the assessment process to differ in this scenario, for example, a review of how much rent you have been paying over the previous six months.
Can I Buy a Property with a 5% Deposit?
Yes, it is possible to purchase a property with a 5% deposit. Some lenders offer mortgages with a 95% loan-to-value (LTV) ratio, enabling buyers to proceed with a smaller deposit. However, you can expect higher interest rates when buying with a 5% deposit. These are often limited to houses only, rather than flats.
How Much Deposit Do I Need to Get the Best Mortgage Rate?
In general, the larger the deposit you have, the better mortgage rates you may be eligible for. Lenders often provide more competitive rates to borrowers with larger deposits as it demonstrates financial stability and lowers the loan-to-value ratio. The best rates tend to be with a 40% deposit. To get the best mortgage rate for your circumstances, we recommend consulting a professional mortgage broker, such as our friendly team here at The Mortgage Pod.
When Do I Need to Pay a Deposit for a Mortgage?
The deposit is usually paid on exchange of contracts. It is a significant step in the property buying process, demonstrating your commitment to the purchase. This is usually 10-12 weeks after your offer is accepted to buy a property.
Why Should I Save a Bigger Mortgage Deposit?
Saving a bigger mortgage deposit offers you many advantages such as:
- Smaller Mortgage: A larger deposit will reduce the amount you need to borrow, resulting in lower monthly mortgage repayments.
- Easier to Secure: Using a higher deposit will lower the risk of your mortgage application, and lenders are likely to have more relaxed criteria, making a product easier to secure.
- Lower Interest Rates: Lower interest rates mean lower monthly payments.
- Increased Borrowing: With a bigger deposit, lenders will be more comfortable increasing the maximum loan available, which can increase your buying capacity and options.
Ultimately, saving a bigger deposit will demonstrate financial discipline, strengthen your overall position, and reduce the perceived risk to the lender, making you a more attractive borrower to mortgage lenders.
Will I Need a Deposit to Move House?
If you are purchasing a new property while selling an existing one, then the equity from the sale can be used as a deposit for the new property. However, if you’re not selling a property, you’ll typically need a deposit to secure a new mortgage. It’s perfectly acceptable to use some “cash from sale” as well as some cash or savings to top up your deposit for your next home.
How Much Deposit Do I Need for a Buy-to-Let Mortgage?
Generally, buy-to-let mortgages require a larger deposit compared to residential mortgages. It’s common for lenders to ask for a deposit of at least 25% of the property’s value, although products will start from as little as a 15% deposit.
How Much Deposit Do I Need on Exchange of Contracts?
The deposit required on exchange of contracts will be a percentage of the property’s purchase price, normally 10%. If a first-time buyer is using a 5% deposit, then each party’s solicitor can agree to exchange contracts with just 5% or even no deposit at all. If you are buying and selling, then your solicitor can usually use your buyer’s deposit in connection with your purchase, so you will not have to find anything.
FAQs
How much deposit do I require to get a mortgage?
A typical minimum deposit required for a mortgage will be 5% of the purchase price, although depending on your circumstances, there are mortgage options that require 0% deposit.
Can I get a 100% mortgage?
Yes, at The Mortgage Pod, we have access to 100% mortgage products. Eligibility will depend on your individual circumstances. You can Get Started with our team HERE to find out if this would work for you.
How much extra deposit should I use to get a better mortgage deal?
Mortgage products tend to be priced in brackets of 5%. The more deposit you can provide, the better the mortgage deal you can expect. This typically applies until you reach a 40% deposit, also known as 60% loan-to-value, after which the deals offered don’t tend to change.
Can The Mortgage Pod help me understand how much deposit I will need?
Yes, absolutely we can. You can Get Started with our friendly team HERE to find out.
