Mortgage Deposit Guide

It doesn’t matter whether you’re a previous homeowner, first-time buyer or commercial property investor – if you’re buying a new property with a new mortgage, you’ll probably need to put down a deposit.

How much deposit do I need?

The amount you’ll have to pay in deposit depends on the value you’re borrowing and the mortgage product you’ve decided to proceed with.

Your deposit is normally worked out as a percentage of the value of the property you want to purchase. The maximum mortgage you can take out is 95%, which means you have to provide at least a 5% deposit. However, a lot of lenders will ask for a deposit of 10% or more. There are options to reduce the deposit you need – you can find more information on this below.

It’s worth trying to contribute as much in deposit as you can. A large deposit makes you appear less risky to lenders. This not only increases your chances of being accepted for a mortgage, but it also gives you access to better rates. Furthermore, you borrow less, which means your monthly repayments will be lower and you’ll accrue less interest.

What deposit is needed for a Buy-to-Let mortgage?

Buy-to-let properties are slightly riskier investments for lenders, which is why their rates are higher and they often require a larger minimum deposit – usually at least 25% – 40% of the property value.

Example

  • You want to purchase a property for: £300,000
  • You take out a 75% buy-to-let mortgage for: £300,000
  • The deposit required is: 25%
  • You pay 25% of £300,000 in deposit = £75,000
  • The lender lends you: £225,000
  • You purchase the property for: £300,000

When do you pay a mortgage deposit?

You normally pay your deposit to your solicitor 1 or 2 days before the exchange of contracts. The solicitor will hold on to that deposit until completion, at which point the mortgage money comes through and is added to the deposit money to make up the full sale price of the property.

The solicitor will then pass this all to the vendor’s solicitor to complete the sale.  There’s usually a gap between the exchange of contracts and completion of a week or 2. This is sometimes longer, e.g. when buying a new build property. If your whole deposit is coming from the sale of your previous property, then your solicitor will usually make alternative arrangements.

What's a holding deposit?

You may be required to pay a holding deposit on your new home; this is different from your mortgage deposit.

A holding deposit shows the buyer you’re serious about purchasing their property and prevents them from selling their property to someone else. It’s typically between £500 – £1,000, but it’s ultimately up to the seller and their solicitor to set the amount. They decide on an appropriate level which is affordable but enough to discourage either party from withdrawing from the transaction.

How to save for a mortgage deposit

In the UK, we’re lucky because we have a lot of different options that make saving for a mortgage deposit a little easier.

Some ways to save for your first home include:

  • Returning to your parents’ home to reduce rent costs

Moving back in with Mum and Dad is rarely anyone’s first choice, but it can be an effective way to save up for a house. Any rent you pay will likely be cheaper than what you were paying on your own place. Just remember that you won’t be living there forever!

  • Ask the Bank of Mum and Dad

Most first-time buyers need a little financial support from their parents and a lot of lenders are unfazed by parental donations – but not all of them. Some lenders are less inclined to accept parental gifts. This is because they need to be sure the gift is, in fact, a gift.

Not all parents can – or want to – make a true gift, so they may loan you the deposit. Be certain what it means when your parents give you money towards your new home as it may affect the mortgages available to you.

  • Help to Buy Equity Loan

Another way you can save money for a house is with the Help to Buy Equity Loan. It’s a government scheme whereby the government helps you purchase a newly built home by lending you a percentage of its value. You could receive up to 20% for a property outside of London and up to 40% for a property inside London.

You don’t need to be a first-time buyer to receive the Help to Buy Equity Loan, but you can only use it to purchase a newly built home valued at up to £600,000. This means the maximum you can receive in loan is £120,000 outside of London and £240,000 in London. The Help to Buy Equity Loan is useful if you need help saving a deposit, as you can use the loan to make up the difference, e.g. if you need a 25% deposit and a 75% mortgage, you’d only really need to save a 5% deposit as you could use the 20% loan to make up the rest.

For a better idea of how much you need to save for a house or flat, speak to one of our advisers on 01634 968111.

Want to speak to one of our advisors?

Important information

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

There may be a fee for mortgage advice. The actual amount will depend upon your circumstances.

The fee is up to 1% but a typical fee is £598.