How much of a deposit do I need for a mortgage?
How much you need to save for a mortgage will vary depending upon where you are looking to buy, and how much you are able to repay monthly. The more you save, the less you will need to pay each month.
You will usually need to save at least 5% of the property’s value to get a mortgage. This means you will take out a mortgage for the remaining 95%. Most first-time buyers tend to put down a larger deposit. It’s important to remember that the bigger your deposit, the higher your chance of being accepted for a mortgage.
Saving for a bigger deposit will also mean you have access to more competitive mortgage rates. Usually, a deposit of 20% or more will get you access to better rates, but some of the best mortgage rates require as much as a 30% deposit.
Saving for a larger deposit can be advantageous, but the number of lenders offering low deposit mortgages is increasing, so saving for a large deposit is not necessary for buying your home. However, it’s important to remember that you will not only need to save for your deposit. You will also need to save for things like solicitor’s fees and stamp duty. This could change how much you can afford to save.
Should I save for a bigger mortgage deposit?
When calculating how much you need to save, it is helpful to look at typical property prices in the area where you want to buy. If you cannot afford the repayments for a deposit of 5% or 10%, then you will need to save for a larger deposit. This will lower your monthly repayments because you are borrowing a smaller amount.
A larger deposit will also make you less risky for mortgage lenders meaning they are likely to offer you lower interest rates. Saving for a larger deposit, therefore, means you are likely to have better mortgage deals available to you.
If your salary is relatively low, you may find lenders will be reluctant to accept a smaller deposit. This will mean saving for a larger deposit to make up more of the property’s value. Owning more of your home outright is less risky for both you and the lender. It means you're less likely to fall into negative equity.
If you are unsure how much to save, it may be worth speaking to a mortgage advisor who can guide you through the best options for you.
What should I do if I am struggling to save?
Saving for a mortgage can be difficult, especially if you are a first-time buyer. Fortunately, there are plenty of options available that can help you save for your mortgage.
A Help to Buy equity loan is a government scheme where you put down a deposit of 5% and the government lends you up to 20% in England and Wales. This amount varies in London and Scotland, where the government lends a different percentage. You can then get a mortgage to cover the rest.
Shared ownership schemes allow you to buy between 25% and 75% of the property and pay rent on the rest. This can help make your mortgage more affordable.
Lifetime ISAs can offer a bonus, but you must be under the age of 40 and you cannot access the savings or bonus until you’ve had the account for at least a year.
100% mortgages require no deposit at all and are available in the form of guarantor mortgages. This means that a family member or friend will assume some of the risk by providing security for your mortgage repayments.
Lastly, it is worth evaluating your spending habits. Rent is likely to be your biggest monthly expense, so it may be worth looking into reducing your rent while saving for your deposit. This is not possible for everyone but can be a huge help when looking to buy your first home.