How much deposit do I need for a mortgage?
In this blog, we will cover how much mortgage deposit you may need for a mortgage.
The amount of deposit you will need for a mortgage will be based mostly on the type of mortgage you are after, your credit score & history, the type of property you are after and all other personal circumstances.
The amount of mortgage deposit required on a property is based on percentages. This means the percentage of the property price(value) Usually this was 20% but there are now a lot of mortgages with a 5% mortgage deposit requirement.
If the mortgage deposit requirement is 5% and you wanted to buy a property for £100,000 you will need a mortgage deposit of £5,000.
how much deposit do I need for a mortgage?
Mortgages are really divided into two categories.
Residential mortgages and commercial mortgages.
The amount of mortgage deposit you will need for a mortgage will depend on a variety of personal circumstances and the type of mortgage you are after.
Residential mortgages will usually have a lower mortgage deposit requirement than commercial mortgages as residential mortgages are considered less risky than commercial mortgages.
You can now get many residential mortgages with a mortgage deposit of 5% whilst commercial mortgages will usually require a mortgage deposit of around 25%.
This means for a £500,000 house, you will need a mortgage deposit of £25,000 for a residential mortgage and a mortgage deposit of £125,000 for a commercial mortgage such as a buy to let mortgage.
You may be able to get a residential mortgage with no mortgage deposit down as there are now family deposit mortgages which allow you to geta 100% loan to value mortgage.
These family deposit mortgage which are also known as the family springboard mortgage, include mortgages from lenders such as the Barclays family springboard mortgage, the lloyds lend a hand mortgage or the post office family link mortgage.
With these mortgages, your family members will have to put around 10% of the property price in a savings account for a fixed period.
How much deposit you may need for a mortgage will depend on your own intentions and circumstances.
How much deposit do I need for a mortgage If I want to reduce my monthly mortgage repayments?
If you want to reduce your monthly mortgage repayments then putting down a larger mortgage deposit than required may be the best way to reduce your monthly mortgage repayment to an affordable amount.
By increasing your mortgage deposit you will reduce the amount of mortgage you borrow and this means you will reduce the amount of money you have to pay back and the amount of interest you have to pay.
How much deposit do I need for a mortgage If I want to qualify for a cheaper mortgage rate?
If you want to get a cheaper mortgage rate then you may want to increase the amount of mortgage deposit you put down. An increased mortgage deposit will mean you fall into a lower loan to value rate. Loan to value rates are one of the main factors a mortgage lender will use to determine the mortgage rates they charge.
This is because the lower the loan to value rate the lower the mortgage lender is offering to you in contrast to the value of the home.
A larger mortgage deposit will, therefore, reduce the loan to value rate on the mortgage and by default reduce the mortgage rate offered to you.
This isn’t always the case as although a mortgage deposit will reduce your loan to value rate you may still have a higher mortgage rate due to other factors such as bad credit or having complex income.
You should also be aware that the loan to value bands that mortgage lenders typically use to determine the mortgage rates they charge will usually move up in increments of 5%. This means that marginally increasing your mortgage deposit by less than 5% may not reduce the mortgage rate you are currently on as it may not push you into a cheaper loan to value band.
How much deposit do I need for a mortgage If I am self-employed?
If you are self-employed you may find that most mortgage lenders may be willing to lend to you if you have 3 years worth of accounts but if your income isn’t reliable or you have less than 3 years worth of accounts then you may struggle to find a mortgage lender who will not require you to put down a larger mortgage deposit to get a mortgage.
You will need to produce the below documents when seeking a self-employed mortgage:
Your SA302 tax calculation form
Your P60 tax return
Bank statements for the past 3 months
Accountants certificate for a mortgage
Any third party contracts
Your company accounts
Your self-employed accounts
How much deposit do I need for a mortgage If I have bad credit?
If you have bad credit you may realise that most mortgage lenders will insist you put down a larger mortgage deposit before they consider lending to you.
Mortgage lenders consider bad credit on a case by case basis and this means that there are many mortgage lenders who may be able to lend to you based on your own personal circumstances but you will usually have to put down a larger mortgage deposit to reduce the mortgage lenders risk.
Bad credit may include:
Credit account defaults
A debt management plan
A home repossession
There are many mortgages out there for first-time buyers which allow you to put a mortgage deposit of 5% down. There are also first-time buyer government schemes which will increase the amount of mortgage deposit you have in order to increase your mortgage affordability and make you more eligible for a variety of mortgages.
In some cases, these first-time buyer government schemes will reduce the amount of the property price and thereby increasing the amount of mortgage deposit you have in relation to the property value.
These schemes include:
- Lifetime ISA– gives you a government bonus of £1,000 if you save a maximum £4,000 a year.
- Help to buy ISA– gives a maximum bonus us £3,000 if you save the maximum allowed of £12,000. Before you get either you should consider which is better. Lifetime ISA vs Help to buy ISA.
- Help to buy equity loan– gives you up to 40% as a 5-year interest-free equity loan. You begin to pay interest at 1.75 % after the fifth year and 1% plus RPI for every year thereafter.
- Shared ownership– You can buy between 25% to 75% of the property initially with a shared ownership mortgage and then buy more using a staircasing mortgage.
- Armed forces help to buy– similar to the help to buy equity loan but specific for the armed forces personnel giving them an increased chance of acceptance.
- Rent to buy– This is the right to buy scheme on which this guide is currently discussing. A different marketing name is just used. Watch out for this when shopping to avoid missing out on eligible properties due to confusion.
- Right to buy– allows you to buy your home at a discount price.
- Preserved right to buy– same as above.
- Right to acquire– similar to the above.
Depending on where you live, you may also be able to take advantage of home buying schemes provided by your local council. Example: In Norwich, the local councils provide the Norwich home options scheme.
As a first-time buyer you may also be able to get a 0% mortgage by using a guarantor and getting a guarantor mortgage.
Guarantor mortgages essentially appoint a guarantor to guarantee a minim 75% of the mortgage in case you fail to make your monthly mortgage repayments and default on the mortgage. The guarantor will be liable for the mortgage and may even lose some of their property in order for the mortgage lender to recoup any losses.
Is 10000 enough for a house deposit?
10000 may be enough for a house deposit depending on the price of the house and the percentage of house deposit you are required to put down. If you are required to put down a house deposit of 5% then 10000 will be enough to buy you a 200000 house. If you are required to put down a house deposit of 10% then 10000 will be enough to buy you a house for 100000.
How much of a deposit do I need for a mortgage in Ireland?
For a mortgage in Ireland, you will need around a 5% to 15% mortgage deposit. House prices in Ireland are a bit cheaper than they are in England and you may find average house prices of around £250,000 meaning a mortgage deposit of £25,000 will likely get you a house in Ireland.
Can I get a mortgage with no deposit?
Yes, you can get a mortgage with no deposit with guarantor mortgages which require your guarantor to ut down some collateral which guarantees your mortgage. This will usually need to guarantee a minimum of 75% of your mortgage. If you fail to make your monthly mortgage repayments then your guarantor could lose their property.
You may also be able to get family springboard mortgages which offer a loan to value of 100%.
With these mortgages, your family members will usually have to put down 10% of the property price in a linked savings account for a fixed term which is usually 3 years.
Use a mortgage broker for your mortgage in principle
You may want to use an independent mortgage broker to help you get a mortgage on your new home.
Mortgage brokers are important as they can access mortgage products from across the whole of the market in some cases.
This could be over 11,000 mortgage products. This may have some advantages rather than going directly to a mortgage lender.
A mortgage broker will look to understand your financial circumstances and then provide recommendations on which mortgage products may be suitable for you based on your mortgage affordability.
After giving you these mortgage recommendations, most mortgage brokers will seek your consent to apply for a mortgage in principle.
This will allow you to shop for your home as more estate agents and sellers may take you seriously and it will also give you confidence that your mortgage is indeed a possibility before you make a full mortgage application.
Once you have found a home you want to buy and are satisfied with the mortgage offer for your mortgage then the mortgage broker will then look to get you a mortgage offer.
This will come with a key facts illustration document that details the features of your mortgage including how much you will pay per month.
It will also contain information on if there are any limits such as early repayment fees, or annual overpayment limits.
If you are happy with everything you can then go on to secure your mortgage with the help of a conveyancer.
Your conveyancer will manage the legal searches on the property to ensure there aren’t any issues with it.
They will oversee the sales agreement to ensure it is in your best interest, they will manage the transfer of mortgage funds, exchange contracts with the seller or their conveyancer, and set a completion date with the seller or their conveyancer.
This will then bring an end to the conveyancing process, at which point you will receive the keys to the house and move in.
If you need financial advice and you live in the UK then you could contact the Money Advice service over the phone or via chat for impartial advice.
You can also contact the debt charity “Step Change” if you are in debt and need help.