There’s more to saving a deposit for a mortgage than you’d think. Discover the costs of buying your future home and learn more about minimum deposits and saving for a house.
If you’re planning to buy a new home, you might be wondering how big your deposit needs to be for your mortgage.
The amount you’ll need to pay for a deposit on a mortgage will vary based on how much the home you’re buying is worth, and how much you’re willing to borrow.
Below we’ll explore the minimum deposit for a house, how big your deposit might need to be, and more.
What is a deposit for a mortgage?
When you decide to buy a house, you probably won’t be buying it outright. Instead, you’ll need to take out a mortgage loan. However, you’ll still pay some money upfront. This amount you pay upfront is your deposit.
Deposits are usually a percentage you pay based on the value of a property. So, if you paid a 10% deposit on a £200,000 house, you would pay £20,000 as a deposit. Deposit amounts can vary too – you may opt to pay 5% or 15% which, based on a £200,000 house, means your deposit would be £10,000 or £30,000 respectively.
You may be wondering why anyone would want to pay a larger deposit than necessary, but there are some advantages. Most notably, a larger deposit can affect your loan-to-value.
What is loan to value (LTV)?
LTV or loan-to-value is the ratio that shows both the value of a property and the loan you’ll get with a mortgage. Using the example from earlier:
- You put down a 10% (£20,000) deposit on a £200,000 house.
- Because you paid 10%, the total value you need to loan is now £180,000.
- Your mortgage is for £180,000.
You can amend this for any deposit amount. For example, a 5% deposit on a £200,000 house would result in a mortgage loan of £190,000.
How much do you need for a house deposit?
While the total value can vary depending on the house and borrowing terms you want, most lenders require a 5% deposit. That means a minimum of 5% of the value of the property you are looking to buy. For the average UK first-time buyer around 15% of the property’s value is a typical deposit. However, you can always pay more and, depending on your region, many do.
It can be difficult to answer the exact deposit you would need for a mortgage. Based on current governmental house data, the average deposit per region at 15% would be:
| Region | Avg. Property Price (£) | Avg. Deposit (15%) (£) |
|---|---|---|
| East Midlands | 242,000 | 36,300 |
| East of England | 343,000 | 51,450 |
| London | 500,000 | 75,000 |
| North East | 159,000 | 23,850 |
| North West | 217,000 | 32,550 |
| South East | 373,000 | 55,950 |
| South West | 316,000 | 47,400 |
| West Midlands | 246,000 | 36,900 |
| Yorkshire and the Humber | 210,000 | 31,500 |
Is it better to have a bigger deposit when buying a house?
Remember, just because you can pay less doesn’t mean you should. If you have a lower LTV (because you paid a larger deposit) you may get access to more mortgage products. Likewise, your repayments should be lower if you are paying back less. However, this depends on interest rates, borrowing terms, products and more. Assuming you can afford it, there are generally only benefits to choosing a larger deposit for your mortgage.
How much can I borrow?
The amount you can borrow varies depending on the cost of the house you’re purchasing, your current debts, as well as your incoming and outgoing payments. Additionally, your application status will affect the amount you can borrow in the following way:
- If you’re a single applicant, lenders will generally loan you four times your annual salary.
- If you’re a joint applicant, lenders may loan you three times your combined annual salary. However, in some instances it can be four times the first salary, plus the secondary salary.
Remember, because lenders can consider outgoings, expenses such as bills, debts and even childcare can be taken into consideration. That means identical salaries may not yield the same results between different applicants.
Lenders require this information to determine if you can comfortably make the repayments. Remember, the larger your deposit the less you need to borrow.
What are 0% mortgages and do they require a deposit?
0% mortgages, also known as zero-deposit mortgages, are loans that cover the entire purchasing cost of a property, meaning you don’t need to frontload a deposit for a mortgage.
However, a zero-deposit mortgage means a 100% LTV, resulting in higher monthly repayments as you need to pay off the entire property. If you’re struggling to get a deposit for a mortgage together, a 0% mortgage might sound like a tempting proposition.
However, these mortgages are extremely rare, and those that do exist will often come with strict criteria and a number of caveats. In most cases, you will require a guarantor who can be responsible for the mortgage payment if you’re unable to make it. Many also carry warnings that they can be suddenly cancelled. Because of this, many customers find 0% mortgages highly impractical, insecure and not worth the risk.
Additionally, because you own 100% of the home, if house prices were to fall, you could end up with negative equity. Typically, those buying a 0% mortgage will have all the money upfront, usually after securing multiple other properties with enough equity.
What other costs are associated with buying a house?
While people often focus on the cost of getting a deposit together for a mortgage or the monthly repayments, the truth is there are many hidden costs with purchasing a property. When you’re trying to determine your minimum deposit for a house, or the amount you’re comfortable repaying, try to keep the following costs in mind:
Legal fees
When you buy a home, you will probably need a solicitor or conveyancer to handle all the legal tasks when buying (or selling) your home. Depending on what needs to be done, you can easily accrue over £2,000 in legal fees and local searches.
In addition, your mortgage broker may require a mortgage arrangement fee, which can also cost up to £2,000, but you may be given the option of adding this to your mortgage.
There may be other little payments here and there too, such as a CHAPS (Clearing House Automated Payment System) – a non-refundable payment that costs up to £50. This covers the cost of your mortgage lender issuing the mortgage payments to your solicitor. Others could include the mortgage account fee or booking fees, for example.
Valuation fees
A valuation is where a mortgage provider assesses the value of the home. This way, they can be confident that the cost of the property is worth the amount they will loan you. The property valuation can cost anywhere from £100 to £1,000.
Stamp duty
Stamp duty is a form of tax you need to pay on a property, depending on its value. There are different bands of stamp duty land tax (SDLT), influenced by what type of buyer you are, and how much the property costs.
As a first-time buyer:
- If your home costs £625,000 or less, you pay no stamp duty on £425,000 of the property’s total value.
- That means if your home costs £425,000 or less, you will not pay any stamp duty.
- Anything over that £425,000 is eligible for stamp duty, but only on the amount that goes over. For example, if you paid £470,000 for your home, then you would only have to pay 5% on £50,000 (£2,500).
It doesn’t matter if it’s your first home, a new home, or an additional property – you’ll still have to pay stamp duty if eligible. Usually, this is paid within 14 days of completion of purchase.
Post-purchase costs
Don’t forget fees post-purchase, such as buildings insurance, contents insurance, council tax and bills. You may also want to check if you need to pay for parking permits on your street.
Moving fees
Don’t forget, moving costs money – whether a moving van, buying new white goods, or just the fuel to go back and forth. While it may not seem important now, it’s an expense that should be budgeted for.
Repair fund
Once you get your own home, you may end up responsible for a lot of the repairs. Paying money into a pot for rainy day circumstances is hugely important. From your washing machine to the roof, windows to the boiler, there’s a lot to maintain and look after in a house.
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