A mortgage deposit is the money you put towards buying a property.
The mortgage lender provides the rest of the purchase price.
For example, if a home costs £200,000 and you have a £20,000 deposit, you would need to borrow £180,000.
Your deposit can affect how much you need to borrow. It can also affect the mortgage deals available to you.
What Is a Mortgage Deposit?
A deposit is your contribution towards the cost of the property.
For example:
Property price: £200,000
Your deposit: £20,000
Mortgage needed: £180,000
In this example, your deposit is 10% of the property price.
Therefore, the mortgage covers the other 90%.
How Much Deposit Do You Need?
The amount needed depends on the mortgage and your circumstances.
Some mortgages may be available with a deposit of 5%.
However, other mortgages may need a larger deposit.
For example:
| Property Price | Deposit | Mortgage |
|---|---|---|
| £200,000 | £10,000 – 5% | £190,000 |
| £200,000 | £20,000 – 10% | £180,000 |
| £200,000 | £30,000 – 15% | £170,000 |
| £200,000 | £50,000 – 25% | £150,000 |
Generally, a larger deposit means you need to borrow less.
What Is Loan-to-Value?
Your deposit is closely linked to Loan-to-Value (LTV).
LTV shows how much you are borrowing compared with the property’s value.
For example:
Property value: £200,000
Deposit: £20,000
Mortgage: £180,000
The calculation is:
£180,000 ÷ £200,000 × 100 = 90%
Therefore, you have a 90% LTV mortgage.
How Do Deposit and LTV Work Together?
In a simple purchase, a larger deposit gives you a lower LTV.
For example:
5% deposit = 95% LTV
10% deposit = 90% LTV
15% deposit = 85% LTV
20% deposit = 80% LTV
25% deposit = 75% LTV
40% deposit = 60% LTV
This matters because lenders often offer different mortgage deals at different LTV levels.
Is a Larger Deposit Better?
A larger deposit can have several benefits.
First, you need to borrow less.
Also, you may have access to more mortgage deals.
You may also qualify for a lower interest rate.
However, this is not guaranteed.
Your income, spending, credit history and other factors will also affect the lender’s decision.
Do You Need a 10% Deposit?
Not always.
Some mortgages are available with a 5% deposit.
Therefore, you may be able to buy a home without saving 10%.
However, mortgage availability changes.
Lenders also have their own rules.
So, check the deals available when you are ready to buy.
What Is a 5% Deposit?
Suppose you want to buy a home for £250,000.
A 5% deposit would be:
£250,000 × 5% = £12,500
You would then need a mortgage of:
£237,500
This would give you a 95% LTV mortgage.
What Is a 10% Deposit?
Using the same £250,000 property:
£250,000 × 10% = £25,000
Therefore:
Deposit: £25,000
Mortgage: £225,000
LTV: 90%
You would need to save an extra £12,500 compared with a 5% deposit.
However, different mortgage deals may then become available.
What Is a 25% Deposit?
A 25% deposit on a £250,000 property would be:
£62,500
You would then need a mortgage of:
£187,500
This gives you an LTV of:
75%
Again, a lower LTV may give you access to different rates and deals.
Should You Save for a Bigger Deposit?
Possibly, but it depends on your situation.
Saving for longer could help you reach a lower LTV.
However, property prices and mortgage rates can change while you are saving.
Your personal circumstances can change too.
Therefore, there is no deposit size that is right for everyone.
Instead, look at the mortgage deals available and your wider finances.
Don’t Forget the Other Costs
Your deposit is not the only money you need when buying a home.
There can be many other costs.
For example:
- legal fees
- property taxes
- mortgage fees
- survey costs
- moving costs
- insurance
- repairs
- furniture
Therefore, avoid thinking only about the deposit.
Work out the full cost of buying.
Should You Use All Your Savings as a Deposit?
Not necessarily.
A larger deposit can reduce your mortgage.
However, using all your savings could leave you with no money for unexpected costs.
For example, you may move into the property and discover that the boiler needs replacing.
Or you may need urgent repairs.
Therefore, keeping an emergency fund can be useful.
Where Can Your Deposit Come From?
A mortgage deposit can come from several sources.
For example, it may come from:
- your savings
- money from the sale of another property
- a gift from family
- an inheritance
- certain savings schemes
- equity from another property
However, lenders need to know where the money has come from.
Therefore, you may need to provide evidence of the source.
What Is Proof of Deposit?
A lender or solicitor may ask you to show where your deposit came from.
This is known as proof of deposit.
For savings, you may need to provide bank statements.
If the money came from another source, other evidence may be needed.
This forms part of checks carried out during the buying process.
What Is a Gifted Deposit?
A gifted deposit is money given to you to help buy a property.
For example, parents may give their child £20,000 towards a first home.
The lender will normally want to know about the gift.
It may also ask for written confirmation.
The person giving the money may need to confirm that it is a genuine gift rather than a loan.
Therefore, tell your lender or mortgage broker about a gifted deposit early.
Can Your Deposit Be a Loan?
This can be more difficult.
Borrowing money for a deposit creates another debt.
Therefore, the mortgage lender needs to know about it.
The extra loan may affect your mortgage affordability.
Some lenders may not accept certain forms of borrowed deposit at all.
Therefore, never hide borrowed money from a mortgage lender.
Can You Use an Inheritance?
Yes, an inheritance can often be used towards a property deposit.
However, you may need to provide evidence showing where the money came from.
For example, your solicitor or lender may need documents linked to the inheritance.
Therefore, keep the relevant records.
Can You Use a Lifetime ISA?
A Lifetime ISA (LISA) can help eligible first-time buyers save towards their first home.
The government adds a bonus to qualifying savings.
However, rules apply.
These include rules about the property, purchase price and how the money is withdrawn.
There can also be a withdrawal charge if money is taken out for another reason, subject to the scheme rules.
Therefore, check the current LISA rules before relying on the money for a purchase.
What About Help From Family?
Family support does not always have to be a simple cash gift.
Some mortgage products allow family members to help in other ways.
For example, a lender may offer a mortgage where family savings or property are used as extra security.
However, these arrangements can put the family member’s money or property at risk.
Therefore, everyone involved should understand the agreement.
Does Your Deposit Affect Your Interest Rate?
It can.
Lenders often offer different rates at different LTV levels.
For example, the deals available at 90% LTV may be different from those available at 75% LTV.
Therefore, increasing your deposit could reduce the interest rate available to you.
However, the size of the saving varies.
Always compare the actual mortgage deals.
Could a Small Extra Deposit Make a Difference?
Sometimes.
Suppose you want to buy a property for £200,000.
You have a deposit of £48,000.
Therefore, you need to borrow:
£152,000
This gives an LTV of:
76%
However, if you increased the deposit to £50,000, you would only need to borrow:
£150,000
Your LTV would then be:
75%
That could give you access to another LTV band.
However, check whether the new mortgage deal actually saves enough to make the extra deposit worthwhile.
What If the Lender Values the Property Lower?
The lender may value the property below the price you have agreed to pay.
This is called a down valuation.
For example:
Purchase price: £250,000
Lender’s value: £240,000
The lender may base its mortgage on the lower figure.
As a result, you may need a larger deposit.
Therefore, an agreed purchase price does not always guarantee the amount a lender will provide.
Deposits for New-Build Homes
Mortgage rules can be different for new-build properties.
For example, some lenders may have different LTV limits for new-build houses and flats.
Developers may also offer incentives.
These should be declared to the lender.
Therefore, check the mortgage requirements before committing to a new-build purchase.
Deposits for Buy-to-Let Properties
Buy-to-let mortgages often need larger deposits.
For example, a landlord may need a deposit of 20% or 25%. However, lender requirements vary.
The lender will also consider the expected rental income.
Therefore, buy-to-let mortgage rules are different from those for a normal residential mortgage.
Deposits for Second Homes
A second home mortgage may also need a larger deposit.
The lender will consider your existing property and financial commitments.
It will also check whether you can afford the second home.
Therefore, having the deposit alone is not enough.
Deposit or Equity?
If you already own a property, you may hear more about equity than deposits.
For example, suppose you sell your home for:
£250,000
Your remaining mortgage is:
£150,000
This leaves:
£100,000
before selling costs and any other secured borrowing.
Some of this money could then be used as the deposit on your next home.
What If Property Prices Fall?
A larger deposit can provide more protection against falling property values.
For example, someone buying with a 5% deposit starts with little equity.
If the property’s value falls, that equity can quickly reduce.
In some cases, the mortgage could become larger than the property’s value.
This is known as negative equity.
Therefore, higher-LTV mortgages carry some extra risk if property prices fall.
How Long Will It Take to Save a Deposit?
This depends on the property price and how much you can save.
For example, suppose your target deposit is:
£20,000
and you save:
£500 per month
Ignoring any interest or investment growth, it would take:
£20,000 ÷ £500 = 40 months
That is about 3 years and 4 months.
Increasing your monthly saving would reduce the time needed.
Set a Clear Deposit Target
It can help to work backwards from the type of property you hope to buy.
For example:
Target property price: £200,000
10% deposit: £20,000
Then add an amount for the other buying costs.
This gives you a clearer savings goal.
However, review the target over time because property prices and mortgage deals can change.
What Should You Remember?
A mortgage deposit is the money you put towards buying your property.
Generally:
A larger deposit means a smaller mortgage.
It also means a lower LTV.
This may give you access to more mortgage deals or lower rates.
However, your deposit is only one part of buying a home.
You also need money for fees, taxes and other costs.
Therefore, do not focus on reaching the largest possible deposit at the expense of everything else.
A good deposit is one that helps you buy the home while leaving your wider finances manageable.