Understanding Deposit Requirements
The deposit is the amount of money you put towards buying your home upfront. The rest is covered by your mortgage. The size of your deposit affects which mortgage deals you can access and what interest rate you'll pay.
Minimum Deposit Requirements
Most lenders require a minimum deposit of 5% of the property value. For a £250,000 property, that's £12,500. However, 5% deposit mortgages typically come with higher interest rates.
Example: On a £250,000 property, a 5% deposit (£12,500) might get you a rate of 5.5%, while a 10% deposit (£25,000) could reduce this to 4.8%, and 25% (£62,500) might get you 4.2%.
How Your Deposit Affects Your Rate
Lenders use Loan-to-Value (LTV) ratios to price their mortgages. LTV is the mortgage amount as a percentage of the property value. A 10% deposit means 90% LTV.
Typical LTV bands and what they mean:
- 95% LTV (5% deposit) - Highest rates, limited lender choice
- 90% LTV (10% deposit) - Better rates, more options
- 85% LTV (15% deposit) - Good rates available
- 75% LTV (25% deposit) - Access to best rates
- 60% LTV (40% deposit) - Very competitive rates
Gifted Deposits
Can't save enough yourself? Many first-time buyers receive help from family. A gifted deposit is money given to you by a family member (usually parents or grandparents) with no expectation of repayment.
Most lenders accept gifted deposits but will need a letter from the gift-giver confirming it's a gift (not a loan) and that they have no interest in the property.
Saving for Your Deposit
Building up your deposit takes time and discipline. Here are some strategies that can help.
Ways to save faster:
- Open a Lifetime ISA for the 25% government bonus
- Set up a standing order on payday - pay yourself first
- Cut unnecessary subscriptions and expenses
- Consider moving back home temporarily to save on rent
- Look into shared ownership if saving a full deposit is difficult
Even an extra 5% deposit can make a significant difference to your mortgage rate. It's often worth delaying your purchase by a few months to save more if you're close to the next LTV band.