‘How much of a deposit do I need to buy a house?’ is one of the most frequently asked questions by prospective homebuyers, whether for their own use or as a rental investment. Obviously, you may not be looking to buy a house, but the question remains the same, and the answer, like so much in this industry, is not always straightforward. Much can depend on your personal circumstances as well as the type of property you are purchasing.
To assist you in navigating the various options, we have provided the following information. Obviously, we cannot cover every possible scenario, so if you’re still unsure after reading the information below, please give us a call and one of our experienced advisors will be happy to discuss your specific situation and advise you on the amount of deposit you may need.
No deposit mortgage
Prior to the credit crisis, the mortgage market was flooded with 100% mortgage programmes. Without them, many current homeowners would not be able to live in their own homes. Post-credit crunch, mortgage lenders have adopted stricter lending practices, and while 100% mortgages are still available on the current market, they are limited to specialised programmes with stringent eligibility requirements. As a result, their applicability is restricted, and few applicants are able to pursue this path.
A Right to Buy Mortgage is a government scheme that enables council tenants, and some housing association tenants, to buy their home at a substantial discount. Eligibility for this scheme must be confirmed by your landlord and you will still be subject to the same affordability checks as other mortgage applicants.
5% deposit mortgage
Having a 5% deposit and then searching for a mortgage with a 95% loan-to-value ratio is the bare minimum for the majority. With government-backed low-deposit mortgage programmes and increased lender participation, obtaining a mortgage with a 5% deposit is now more accessible than it has been for many years.
10% deposit mortgage
As this is the level at which virtually all lenders will begin to offer mortgages. A 10% deposit opens up a plethora of additional mortgage market options. Certain restrictions may still apply, especially when purchasing a newly constructed home or if you have a history of poor credit. In such circumstances, some lenders may still require larger deposits.
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15% deposit mortgage
Borrowers with a 15% deposit may be able to obtain an 85% loan-to-value mortgage. Many lenders offer 85% LTV mortgages, so you may have the opportunity to access competitive interest rates. It’s worth noting that despite having a large deposit, lenders will still require you to pass credit and affordability checks.
If you are looking to step onto the property ladder but have a history of poor credit, some lenders may require you have a minimum deposit of 15%.
25% deposit mortgage
If you have a 25% deposit on a home, you should now have access to some of the most competitive interest rates on the market, as well as a wide variety of options. While some lenders will reduce their rates further for borrowers with 40% or even 50% down payments, the majority will offer their lowest rates at 75% loan to value. Many lenders may also require a minimum deposit of 25% if you are considering a newly constructed apartment or condominium.
Minimum deposit on a buy-to-let
The above provides an overview of the deposit requirements if the property is for personal use; however, the rules are slightly different if the property is being purchased for rental purposes. In most cases, the minimum deposit for a buy-to-let mortgage is 20%, but there are times when it can be as low as 15%.
While a 20% deposit is the standard minimum, not all lenders will accept this, and for many the minimum is still 25%. Other factors, such as your status as a first-time landlord or an experienced portfolio customer, can affect the size of the deposit you may be required to make.
When it comes to buying a home, everyone’s circumstances are different, and this means that there is no average UK house deposit. Requirements for deposits will vary and the mortgage industry itself is quite complex. If you are unsure about what mortgage deposit you require, we recommend that you seek advice from a financial adviser as they can provide tailored support to your personal circumstances.