In this brief guide, we will discuss what the minimum mortgage deposit you may need for a mortgage.

What is the minimum mortgage deposit you may be required to pay on a mortgage?

The minimum mortgage deposit you may be required to pay on a mortgage will differ based on the type of mortgage you are after. At the moment the minimum mortgage deposit you will need is around 5% of the property price.

The average deposit in the UK is around £33,000, according to financial publication Moneywise.

This climbs up to almost £115,000 for London and Greater London.

How much deposit do you need for a mortgage?

You can out down as much mortgage deposit as you want to when buying a house but the rule of thumb is the bigger the mortgage deposit, the cheaper the mortgage rate as a bigger mortgage deposit reduces the mortgage lenders loan to value and hence the mortgage lenders risk on the mortgage.

The very best mortgage rates are usually reserved for those borrowers who are able to put up a 35% mortgage deposit or more.

If you had to save the minimum 5%vmortgage deposit then on a £500,000 house you will expect to put down at least £25,000 to get a mortgage.

The minimum mortgage deposit which is required by most mortgage lenders is 5% although this can be topped up if you qualify for the numerous government schemes which are now available to home movers and first-time buyers.

Some of these government schemes include:

  • Lifetime ISA– gives you a government bonus of £1,000 if you save the 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- same as 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.

Can you get a mortgage without a deposit?

Yes, there are mortgages which you may be able to get without a mortgage deposit in practic. A family deposit mortgage is one of these types of mortgages and a concessionary purchase mortgage is another type.

A family deposit mortgage is a type of mortgage offered by various mortgage lenders whereby your family member will have to put away their savings in a linked account for a fixed time frame until you have made a minimum number of monthly mortgage repayments.

Concessionary purchase mortgages are mortgages where an entity, family member or friend is selling you a house and has given you a discount which you can use as your mortgage deposit.

In reality, you will be required to put down some form of a mortgage deposit before you can buy a house in the UK as the 100% loan to value mortgages are now long gone.

With a good credit score, you may be able to get a 95% loan to value mortgage.

Can you get a gifted deposit mortgage?

Yes, various mortgage lenders now accept a gifted deposit mortgage although many will insist on a gifted deposit letter using their own template to ensure that the person gifting the mortgage deposit understands that it is a gift and hence they do not have any future claims on the property.

Gifted mortgage deposits will usually only be accepted from family members but not friends.

What is the minimum mortgage deposit for a buy to let mortgage?

If you are trying to get a buy to let mortgage then the minimum mortgage deposit you will usually be expected to put down will be around 20% to 25% of the property price.

Unfortunately, you won’t be able to use any of the government schemes mentioned previously above for your mortgage deposit when buying a buy to let property.

As is the case with residential mortgages, the nigger your mortgage deposit, the more likely you are to receive a smaller mortgage rate.

Minimum mortgage deposit for self-employed mortgages

If you are self-employed then you may find that the mortgage lender will require a minimum mortgage deposit of more than 5% if you are newly self-employed and don’t have more than 12 months worth of self-employed accounts.

You will be required to provide your accountants certificate for mortgage as well as your SA302 self-assessment tax return.

Minimum mortgage deposit for bad credit mortgages

If you have bad credit then getting a mortgage will be slightly harder. You may be limited to a handful of mortgage lenders depending on what type of bad credit it is.

You can expect the minimum mortgage deposit to be much higher if you have bad credit but this is totally dependent on your mortgage affordability.

Bad credit could include:

Home repossessions

Mortgage defaults

Bankruptcies

Individual voluntary arrangements

Debt management plans

Missed credit repayments

Minimum mortgage deposit for first-time buyers

If you are a first -time buyer then you could use any of the government schemes mentioned prior if you are eligible for them.

First-time buyers can now expect to put down at least a mortgage deposit of 5% and they have several unique products helping them such as family deposit mortgages.

Getting a loan for your mortgage deposit

Most people wonder if they could simply get a loan for their mortgage deposit.

The reality is that most mortgage lenders will not accept a loan for a mortgage deposit and a loan will reduce your mortgage affordability as it will increase the number of monthly repayments you may need to make.

This means you will have fewer funds to put towards paying your mortgage.

Mortgage deposits for second homes

If you are thinking of getting a second home then you should be aware that the cost of getting a second home may be higher due to the increased minimum mortgage deposit requirement.

Most mortgage lenders will request a higher mortgage deposit of around 25% to reflect the risk of you having two mortgages and hence increasing the risk of mortgage default.

You should also take into consideration the additional stamp duty rate on second homes.

Minimum mortgage deposit vs maximum mortgage deposit

What are the benefits of putting down a minimum mortgage deposit required by the lender vs putting down the maximum mortgage deposit you can sum up?

Putting down a minimum mortgage deposit will mean you are at a much higher risk of negative equity should house prices fall.

On the other hand, if you had put down the maximum mortgage deposit you could find then you will be at less risk of negative equity as you will have more equity in your home.

Note: Negative equity is when your outstanding mortgage balance is more than the value of your property.

Putting down a minimum mortgage deposit also means that you will have a high loan to value rate.

High loan to value rates will usually mean you pay a higher mortgage rate as the mortgage carries more risk to the mortgage lender than someone who put down a much bigger mortgage deposit and has a lower loan to value rate.

A minimum mortgage deposit will also mean you have bigger mortgage debt and hence higher interest rate repayments.  

If you had put down a much bigger mortgage deposit then your mortgage interest repayments will be less as you would have a smaller mortgage debt. 

Putting down the minimum mortgage deposit will also hurt your mortgage affordability as you will have huger monthly mortgage repayments in contrast to if you had ut a bigger mortgage deposit and hence a smaller mortgage balance to spread over the mortgage term.

As you can see there are fewer benefits to putting down the minimum mortgage deposit required when buying a house

How to save a mortgage deposit

If you are looking to get on the property ladder then there are various ways to save a mortgage deposit but the basic principles of saving still apply.

Budget

Borrow money from friends and family

Move in with your parents

Get a cheaper rent

Cut down on lifestyle expenses

Refinance your debts

Sell things you no longer need

Budget

If you are looking to save a minimum mortgage deposit then the first thing you will need t do is budget how much you will need to save for your mortgage deposit and put together a monthly budget which you will aim to keep.

To figure out how much you will need to save you will need to know your property price and then your mortgage deposit target. 

You can then look at your current monthly disposable income and see if you can increase this further by cutting down on your expenses.

You should then decide how much of your monthly disposable income which you can put towards your mortgage deposit.

Borrow money from friends and family

Another option to help you increase your mortgage deposit is to borrow money from your friends and family.

Mortgage lenders are not to keen on people loaning money which they will use for a mortgage deposit as they will prefer not to have anybody who could potentially have a claim on the property.

Move in with your parents

Another way to save a mortgage deposit is by moving in with your parents to cut down on your rent costs if you currently rent.

Get a cheaper rent

To save a mortgage deposit you can also choose to get cheaper rent by moving to a smaller flat or moving to an area with mich cheaper rent than you are currently paying.

This will allow you to pay any extra savings towards your mortgage deposit.

Cut down on lifestyle expenses

You should look to cut down on your lifestyle expenses such as going to the gym, going to the movies and going out to eat.

All savings you make by cutting down your lifestyle expenses can then be put towards your mortgage deposit.

Refinance your debts

To save funds for a mortgage deposit you can refinance any existing debts you may have to cheaper rates. 

This will mean your monthly repayments will be cheaper and you can use any savings towards your mortgage deposit savings.

Sell things you no longer need

You can sell things you no longer need to raise money for your mortgage deposit.

You could sell your old books, old clothes, old games, old phones etc

There are lots of websites which allow you to sell the above-listed items.

How long does it take to save a mortgage deposit?

It could take as long as 15 years to save a mortgage deposit depending on what you earn, the mortgage deposit requirement (hence 5% of the property price, 10% of the property price etc) and the price of the property you are trying to buy.

Other property buying costs

Aside from your mortgage deposit, there will be other costs involved with buying a house such as the mortgage fees, the conveyancing fees, the stamp duty, property surveys and house insurance.

You can use a stamp duty calculator to see what your stamp duty costs will be as this will likely be your biggest cost outside of your mortgage deposit.

You may also want to consider the council tax costs and costs for furnishing your new home

Mortgage deposit calculator

You can use a mortgage deposit calculator to see what the minimum mortgage deposit you may need to put down for your mortgage could be. 

Remember these numbers are only for guidance and the minimum mortgage deposit you may need to put down may be much more than the calculator displays.  

In this brief guide, we discussed what the minimum mortgage deposit you may need for a mortgage.

If you have any questions or comments please let us know.

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.


John Bate

John has 22 years of experience in financial services. This spans across financial research, financial services (As a qualified mortgage broker and underwriter), financial trading and sales at global investment banks. While working as a publishing research analyst, he covered European bank credit and advised institutional clients on investment strategies at both JP Morgan and Societe Generale. John has passed all three levels of the CFA (Chartered Financial Analyst) programme.