Saving up a larger deposit when buying a property is beneficial. You must typically provide a minimum deposit of 5% of the property’s value to secure a mortgage. For instance, if you aim to purchase a £250,000 home, your deposit must be at least £12,500. If you can save a larger deposit, it will increase the number of mortgage options available. Additionally, you may receive lower and improved mortgage rates. Lenders view homebuyers with larger mortgage deposits as less risky than those with smaller deposits. This means that if you can save up 10%, 15%, or 20% towards your mortgage, you’ll have more options for better-rate mortgages.
Typically, lenders offer the most favourable loan options to individuals who have saved up a 35% or 40% deposit or have built up that amount of equity as an existing homeowner seeking to refinance following an increase in the value of their property.
What's Included?
Can I get a mortgage without a deposit?
It is doubtful to find mortgages that require zero deposit since lenders have become more cautious after the global financial crisis in 2008. Typically, the lowest deposit mortgages require a 5% down payment, known as “95% deals.” However, some lenders may offer mortgages that cover up to 100% of the cost, but only if parents or family members can provide extra cash or equity as collateral.
Can I get a mortgage with a gifted deposit?
If you’re a first-time homebuyer and need help with your mortgage deposit, your parents may be willing to help you. However, suppose you’re getting a gifted deposit from a family member or friend. In that case, your mortgage lender must confirm that the giver knows they won’t have any ownership claim over the property and that the money is a gift, not a loan that needs to be repaid. While lenders usually accept gifted deposits from family members, they may be less likely to do so if the donor is a friend.
What is the minimum deposit for a Buy to Let mortgage?
A larger down payment is required to purchase a property for renting purposes than buying a property for personal residency. You typically need at least 25% of the property value for a Buy to Let mortgage deposit. Similar to residential mortgages, the greater the amount you can put down for a deposit, the more mortgage options you’ll have to choose from.
Is it better to put a bigger deposit down on a property?
The more you can put down as a deposit, the more mortgage options you’ll likely have, and your monthly payments will be lower. Lenders decide how much they’ll lend you to ensure you can afford it based on your income and expenses. They’ll also consider your debts.
If you earn £30,000 a year, a lender may agree to lend you three or four times your income, from £90,000 up to £120,000. Therefore, to buy a property worth £160,000, you must save at least £40,000 as a deposit. However, if you can’t save more than 5% of the property value, don’t worry; some lenders offer 95% mortgages. If you’re unsure which deal is right, seek mortgage advice.
What is the best way to save for a deposit?
The low interest rates in recent years have made it challenging for individuals saving money for a house deposit to achieve their target quickly. But, there are government-run savings initiatives that can assist first-time buyers in saving for a deposit.
The Lifetime ISA is designed to assist people aged 18 to 40 who are saving for a property, retirement, or both. These accounts enable you to contribute a maximum of £4,000 per year, topped up by a 25% government bonus, up to £1,000 annually. Returns on investment are tax-free on income and capital gains tax (CGT). You must possess your Lifetime ISA for at least 12 months before using it to purchase a property.
The Help to Buy ISA scheme has not accepted new savers since 30th November 2019. However, if you had already opened an account before this date, you can continue to save until 30th November 2029. You can save up to £200 each month, and the government will add a 25% bonus to your savings. For example, if you save £200 per month, the government will contribute £50 per month. The maximum bonus you can receive from the government is £3,000, which means you must save £12,000. The bonus must be claimed by 1st December 2030.
You can transfer your savings from a Help to Buy ISA to a LISA or save in both accounts. Note that you can only use the bonus from one of these accounts towards purchasing a house.
What are the additional costs when buying a home?
When saving your deposit to buy a property, save money for extra expenses such as legal fees, stamp duty, survey, and moving costs. Our Credibble Home app will automatically calculate your Stamp Duty to determine the amount you need to pay.
If you are a first-time homebuyer, don’t forget to factor in the cost of furnishing your new home when calculating your savings.
Buying a house is one of the most significant investments you’ll ever make. It’s essential to understand how much deposit you need, what other costs are associated with buying a property and strategies for saving up the necessary amount of money before taking the plunge. The Credibble Home App can help you quickly get to your first home. So, what are you waiting for? Download it today!
Frequently Asked Questions
1. How much deposit do I need for a house?
In almost all cases, you will need a deposit of at least 5% of the property price. That said, the average for a first time buyer in the UK is around 15%. The bigger the deposit, the lower your mortgage interest rate and the smaller your monthly repayments. The loan is considered a lesser risk with a higher deposit amount ¹.
2. What is the recommended deposit amount?
The recommended deposit amount is about 20% 2.
3. How much money do you need to buy a house
You need somewhere between £5,000 and £10,000 saved up as a deposit to buy a low-cost home, £10,000 to £20,000 for a property costing the UK average, and around £40,000 to £50,000 if you want to buy a high-end property 3.
4. What is the minimum deposit required for a mortgage?
In almost all cases, you will need a deposit of at least 5% of the property price ¹.
5. What is the average house deposit for first time buyers in the UK?
The average house deposit for a first time buyer in the UK is around 15% ¹.
6. How does the size of my deposit affect my mortgage interest rate?
The bigger the deposit, the lower your mortgage interest rate and the smaller your monthly repayments 4.
7. How long does it take to save for a house deposit?
It depends on how much you can put into savings each month 5.
8. What are some ways to save for a house deposit?
Some ways to save for a house deposit include opening up an ISA account or LISA account 2.
9. Can I use gifted money as part of my house deposit?
Yes, you can use gifted money as part of your house deposit 2.
10. What are some other costs associated with buying a house?
Other costs associated with buying a house include solicitor fees, survey fees and stamp duty ¹.
References:
- How Much Deposit Do I Need to Buy A House in the UK? – The Mortgage Brain. https://www.themortgagebrain.net/how-much-deposit-do-i-need-to-buy-a-house-in-the-uk
- How much deposit do I need to buy a house? – Better.co.uk. https://better.co.uk/mortgages/house-deposit
- How Much Money Do You Need To Buy A House? | Uswitch. https://www.uswitch.com/mortgages/guides/ultimate-first-time-buyer-guide-how-much-money-do-you-need-to-buy-a-house
- How much deposit do you need for a mortgage? – Which?. https://www.which.co.uk/money/mortgages-and-property/mortgages/mortgages-and-deposits-the-basics/how-much-deposit-do-you-need-for-a-mortgage-a2kn67v6zryh
- How Much Deposit Do I Need For A House? | Bankrate UK. https://www.bankrate.com/uk/mortgages/house-deposit
