How much deposit do you need for a house?

Buying a house in the UK often begins with one pressing question: how much deposit do you need for a house? For first-time buyers and experienced homeowners alike, understanding deposit requirements is essential for planning a successful purchase. In this guide, we break down the average deposit amounts, factors influencing deposit sizes, and government schemes available to ease the burden for UK homebuyers.

The article is updated as of Nov 13, 2024

How much deposit do you need for a house?

Introduction: Understanding House Deposits in the UK

House deposits in the UK are typically a percentage of the property’s purchase price, ranging from 5% to 20%. A deposit acts as both a security measure for lenders and a commitment from buyers. Generally, a higher deposit can unlock better mortgage rates, making it essential to understand what options best suit your financial situation. If you are interested in buying a property, you can contact our team of specialist mortgage brokers to help you with the process.

Standard Deposit Percentages for House Buyers

The required deposit percentage can vary significantly based on factors like credit history, lender policies, and the type of mortgage you’re applying for. Here are typical deposit benchmarks:

•5% Deposit: Some lenders offer 95% mortgages, especially for first-time buyers. These often have specific eligibility requirements, so working with a mortgage broker can help assess your options.

•10% to 15% Deposit: Common for standard mortgage products, especially for buyers with a strong credit profile.

•20% or More: Providing a 20% deposit or higher can often yield better mortgage rates, as it reduces the lender’s risk.

For example, on a £300,000 home, a 10% deposit would require £30,000, whereas a 20% deposit would require £60,000. Mortgage providers generally view larger deposits as a signal of a lower lending risk, which can result in more favourable terms.

How Deposit Size Impacts Mortgage Rates

Your deposit size is directly linked to your mortgage rate. Lenders typically categorize mortgages into “Loan-to-Value” (LTV) bands:

•Lower LTV Ratios (e.g., 80% or below): These generally result in lower interest rates since a smaller portion of the property is being financed. This means if you provide a 20% deposit, you’ll likely access better rates.

•Higher LTV Ratios (90% or higher): Higher LTV mortgages, such as those requiring only a 5% or 10% deposit, often carry higher interest rates to offset the increased risk for the lender.

Providing a larger deposit means borrowing less and often securing a mortgage rate that will save you money over the long term.

Current Deposit Requirements for First-Time Buyers in the UK

For first-time buyers, the average deposit requirements have shifted over recent years due to market changes. First-time buyers can access:

•Low-Deposit Mortgages (5% to 10%): Many lenders offer low-deposit options specifically tailored for first-time buyers, especially with government backing.

•First Homes and Shared OwnershipA scheme where a borrower purchases a share of a property an... Schemes: Designed to make homeownership more accessible, these programs often require lower deposits and are suitable for buyers with more limited funds.

For example, with the Help to Buy scheme, buyers can purchase a new-build home with just a 5% deposit, with an additional government loan covering up to 20% (40% in London).

Government Schemes to Help With Deposits

In the UK, various schemes assist buyers, particularly first-time homeowners, in meeting deposit requirements:

•Help to Buy EquityThe difference between the value of the property and the amo... Loan: This program allows first-time buyers to purchase a new-build home with a 5% deposit and receive a government loan for up to 20% of the property’s value, interest-free for the first five years.

•Lifetime ISA: This savings account allows you to save up to £4,000 a year with a 25% government bonusIncome received as a bonus, which may affect a borrower's ab..., which can be used toward a house deposit.

•Shared Ownership: Through shared ownership, buyers purchase a portion of the property and pay rent on the remainder, reducing the deposit size needed for their share of the home.

These schemes can help reduce the financial barriers to homeownership, especially in high-cost areas.

How to Save for Your Deposit

Saving for a deposit is a significant financial goal, but with careful planning, it can be manageable. Here are some practical tips:

•Set a Target Amount: Determine your target deposit amount based on your property budget and start saving early.

•Open a Lifetime ISA: If you’re a first-time buyer, the Lifetime ISA offers a 25% government bonus on your savings up to £4,000 annually.

•Reduce Debt and Improve Credit: Before applying for a mortgage, reducing debt and improving your credit score can improve your mortgage options and rates.

Even small, consistent contributions can add up over time, so setting a realistic budget and committing to it can be beneficial.

Your home may be repossessed if you do not keep up repayments on your mortgage

Frequently Asked Questions

How much deposit do I need for a first-time buyer mortgage?

First-time buyers in the UK can often secure a mortgage with as little as a 5% deposit, though this may come with higher interest rates. Accessing government schemes like Help to Buy can also reduce upfront deposit requirements.

What deposit do I need for a buy-to-let property?

For buy-to-let properties, lenders typically require a 25% deposit. This larger deposit reflects the greater risk associated with buy-to-let mortgages compared to standard residential loans.

Is a 20% deposit worth it?

Yes, providing a 20% deposit often leads to better mortgage rates, potentially saving thousands over the mortgage term due to lower interest rates.

Are there any schemes to help with the deposit?

Yes, UK buyers have access to government-backed schemes, such as Help to Buy and Lifetime ISA, which can help reduce deposit requirements, especially for first-time buyers.

How do I calculate how much deposit I need?

Calculate the deposit by taking a percentage (typically 5%, 10%, or 20%) of the property’s purchase price. For instance, for a property costing £250,000, a 10% deposit would be £25,000.

Can I get a mortgage with no deposit?

While nearly all mortgages require a deposit, family-backed or guarantorA person who guarantees to repay a mortgage if the borrower ... mortgages may allow some buyers to secure a loan with little to no deposit, depending on the lender.

Conclusion

Understanding the deposit requirements for buying a house in the UK can make the process smoother and less daunting. While saving for a deposit can be challenging, options such as government-backed schemes and tailored mortgage products for first-time buyers help make homeownership achievable. The key is to explore your options, assess your financial position, and find a deposit level that balances affordability with access to favourable mortgage rates. It is always better to contact a mortgage broker to help you with your application process.