The size of the deposit you need depends on several factors, but generally, lenders ask for a minimum of 5% of the property’s value.
- 5% Deposit: Available through standard mortgages. For a £200,000 property, this would mean a £10,000 deposit.
- 10% Deposit: A higher deposit often means better interest rates and more mortgage options. A 10% deposit on a £200,000 property would be £20,000.
- 15-20% Deposit: This can unlock the most competitive mortgage rates and reduce your monthly payments, as the loan amount is lower.
Understanding Loan-to-Value (LTV)
LTV is a key factor that lenders consider when assessing your mortgage application. It’s the ratio between the amount you borrow and the value of the property.
For example:
- If you have a 10% deposit, your LTV is 90%.
- If you put down a 20% deposit, your LTV is 80%.
Why it matters: The lower your LTV, the less risk there is for the lender, which usually translates to more favourable interest rates and better mortgage deals.
First-Time Buyer Schemes and Low Deposit Options
If saving a large deposit feels daunting, there are schemes designed to help first-time buyers and those with lower deposits.
Shared Ownership: This option allows you to buy a share of a property (usually between 25-75%) and pay rent on the remaining share. You’ll only need a deposit based on the share you’re purchasing, making it more affordable.
Joint Borrower Sole Proprietor: If you have a family member willing to add some or all of a guarantor’s earnings to your household income to boost your buying budget, without them having ownership of the home you may be able to secure a mortgage with little or no deposit.
Deposit Unlock: A newer scheme allowing first-time buyers to buy a new-build property with just a 5% deposit, supported by participating builders and lenders.
Enhanced Income Multiples: First time buyers could borrow up to 6x their income is subject to meeting lenders criteria.
Saving for a deposit can feel like an uphill battle, but with a clear strategy, it’s achievable.
Set a Savings Goal: Know how much you need and set a realistic timeline to reach that target.
Cut Unnecessary Expenses: Review your monthly spending and identify areas where you can save.
Open a Lifetime ISA (LISA): The government will boost your savings by 25% (up to £1,000 per year) when saving towards your first home. The LISA must be open for 12 months to qualify for the boost.
Automate Your Savings: Set up a standing order to automatically transfer a set amount into your savings account each month.
You don’t always need a 20% deposit to buy a house. With a range of mortgage options available, homeownership is more achievable than ever. Understanding LTV, exploring first-time buyer schemes, and having a solid savings plan can help you take that all-important first step towards owning your dream home.
If you’re unsure which option is best for you or need advice on your mortgage journey, get in touch — we’re here to help.