You do not always need a large deposit to buy a home.
Some mortgages are available with a deposit of 5% or 10% of the property’s value.
These are often called high Loan-to-Value (LTV) mortgages.
For example, a 5% deposit would normally mean you need a 95% LTV mortgage.
A low-deposit mortgage can help you buy sooner. However, there are also extra costs and risks to consider.
What Is a Low-Deposit Mortgage?
A low-deposit mortgage allows you to buy a home with a smaller deposit.
For example:
Property price: £200,000
5% deposit: £10,000
Mortgage needed: £190,000
In this example, you would borrow 95% of the property’s value.
Therefore, the mortgage would have a 95% LTV.
What Does LTV Mean?
LTV stands for Loan-to-Value.
It compares your mortgage with the value of the property.
For example:
Property value: £200,000
Mortgage: £180,000
The LTV would be:
90%
Therefore, you would provide the other 10% as your deposit.
A higher LTV usually means you are borrowing more of the property’s value.
How Much Deposit Do You Need?
This depends on the mortgage and lender.
However, mortgages may be available with deposits such as:
5%
or
10%
For example, a 5% deposit on a £250,000 property would be:
£12,500
A 10% deposit would be:
£25,000
Therefore, even a small change in the deposit percentage can make a large difference to the amount you need to save.
Can You Get a Mortgage With a 5% Deposit?
Possibly.
Some lenders offer mortgages up to 95% LTV.
This means you provide at least 5% of the property’s value.
For example:
Property price: £180,000
5% deposit: £9,000
Mortgage: £171,000
However, you will still need to meet the lender’s other rules.
Therefore, having the deposit does not guarantee that you can get the mortgage.
Can You Get a Mortgage With a 10% Deposit?
Yes, there are mortgages available at 90% LTV.
For example:
Property price: £200,000
10% deposit: £20,000
Mortgage: £180,000
A 10% deposit may give you more mortgage choices than a 5% deposit.
However, this depends on the mortgage market and your circumstances.
Is a Bigger Deposit Better?
A larger deposit can have several benefits.
First, you need to borrow less.
Also, you may have access to more mortgage deals.
In some cases, you may also get a lower interest rate.
For example:
Property price: £200,000
With a 5% deposit, you need to borrow:
£190,000
However, with a 10% deposit, you need to borrow:
£180,000
Therefore, the larger deposit reduces your mortgage by £10,000.
Should You Wait and Save a Bigger Deposit?
Not always.
Saving a larger deposit can reduce the amount you need to borrow.
However, it may also mean waiting longer before buying.
During that time, property prices and mortgage rates could change.
Your own situation may change too.
Therefore, there is no single answer.
Instead, compare the cost of buying now with the possible benefits of saving for longer.
Low Deposit Does Not Mean Low Cost
Your deposit is only one of the costs of buying a home.
You may also need money for:
- legal costs
- mortgage fees
- surveys
- property taxes
- insurance
- moving costs
- repairs
Therefore, do not assume that saving a 5% deposit means you have saved everything you need.
Keep Money Aside for Other Costs
Suppose you have:
£15,000 saved
You may be tempted to use all £15,000 as your deposit.
However, this could leave you with nothing for other costs.
Therefore, work out your full buying budget first.
It may be better to keep some money aside.
Keep an Emergency Fund
Owning a home can bring unexpected costs.
For example, you may need to repair a:
- boiler
- roof
- washing machine
- window
- plumbing problem
Therefore, some emergency savings can be useful.
A larger deposit can reduce your mortgage. However, using every pound of savings may leave you with little protection.
Are Low-Deposit Mortgages More Expensive?
They can be.
A lender takes more risk when it provides a larger share of the property’s value.
As a result, higher-LTV mortgages may have higher interest rates.
For example, a 95% LTV mortgage may have a higher rate than a similar 75% LTV mortgage.
However, mortgage rates change regularly.
Therefore, compare the actual deals available when you are ready to apply.
Why Does the Interest Rate Matter?
Even a small change in the rate can affect your monthly payment.
It can also change the total amount of interest you pay.
Therefore, do not compare mortgages using the deposit alone.
Look at:
Interest rate
Monthly payment
Mortgage fees
Deal length
Overall cost
This gives you a better picture.
What Is a 95% Mortgage?
A 95% mortgage means the mortgage covers 95% of the property’s value.
You normally provide the other 5%.
For example:
Property value: £300,000
5% deposit: £15,000
95% mortgage: £285,000
Therefore, you are borrowing a large share of the property’s value.
What Is a 90% Mortgage?
A 90% mortgage means you borrow 90% of the property’s value.
You provide the other 10%.
For example:
Property value: £300,000
10% deposit: £30,000
90% mortgage: £270,000
Therefore, you borrow £15,000 less than with a 95% mortgage.
Why Can LTV Affect Your Mortgage Rate?
LTV helps the lender measure risk.
For example, a borrower with a 40% deposit has more of their own money in the property.
In contrast, someone with a 5% deposit is borrowing almost all of the property’s value.
Therefore, lenders may charge different rates at different LTV levels.
What Are LTV Bands?
Mortgage lenders often group mortgages into LTV ranges.
For example, mortgage products may be available around levels such as:
60% LTV
75% LTV
80% LTV
85% LTV
90% LTV
95% LTV
However, these are not fixed rules for every lender.
Therefore, check the actual mortgage products available.
Could a Small Extra Deposit Help?
Sometimes.
Suppose you are close to moving into a lower LTV range.
Adding a little more to your deposit could give you access to different mortgage deals.
For example, reducing your LTV from just above 90% to 90% could make a difference with some lenders.
Therefore, check the available mortgage deals before deciding exactly how much deposit to use.
Does a Low Deposit Reduce How Much You Can Borrow?
Not directly.
Your deposit and mortgage affordability are different.
The lender still needs to decide how much you can afford to borrow.
For example, you may have enough deposit for a £250,000 property.
However, the lender may decide that your income only supports a smaller mortgage.
Therefore, you need both:
Enough deposit
and
Enough mortgage affordability
A Simple Example
Suppose you want to buy a home for:
£200,000
You have:
£10,000 deposit
Therefore, you need:
£190,000 mortgage
Your deposit is enough for a 95% LTV mortgage.
However, the lender still needs to decide whether you can afford to borrow £190,000.
Therefore, having a 5% deposit does not mean you can automatically buy the property.
Does Your Credit History Matter?
Yes.
The lender will normally check your credit history.
For example, it may look at how you have managed:
- credit cards
- loans
- overdrafts
- car finance
- previous mortgages
Therefore, your deposit is only one part of the application.
Your income, debts and credit history matter too.
Can First-Time Buyers Get Low-Deposit Mortgages?
Yes.
Low-deposit mortgages can be useful for first-time buyers.
Saving a large deposit can take many years.
Therefore, a 5% or 10% deposit may allow some buyers to purchase sooner.
However, first-time buyer status does not guarantee approval.
You still need to meet the lender’s rules.
Are Low-Deposit Mortgages Only for First-Time Buyers?
No.
They are not always limited to first-time buyers.
However, the mortgages available depend on the lender and your circumstances.
Therefore, check the rules of each mortgage.
Can You Use a Gifted Deposit?
Often, yes.
For example, a family member may give you money towards your deposit.
This is known as a gifted deposit.
However, the lender will normally want to know where the money came from.
The person giving you the money may also need to confirm that it is a gift.
Therefore, tell your lender or broker about a gifted deposit early.
Can You Borrow Your Deposit?
This can be more difficult.
For example, you may consider taking out a personal loan to provide your deposit.
However, lenders have rules about where deposits can come from.
Also, the loan creates another monthly payment.
Therefore, it can reduce your mortgage affordability.
Always tell the lender the true source of your deposit.
Can Your Deposit Come From Savings?
Yes.
Savings are a common source of mortgage deposits.
However, you may need to show where the money came from.
For example, bank statements may show that you built up the savings over time.
Therefore, keep clear records of your deposit.
What If House Prices Fall?
This is especially important with a small deposit.
Suppose you buy a home for:
£200,000
with a:
£10,000 deposit
You have only a small amount of equity at the start.
If the property’s value falls, your equity could fall too.
In some cases, the property could become worth less than the mortgage balance.
This is known as negative equity.
What Is Negative Equity?
Negative equity happens when your mortgage is larger than the value of your home.
For example:
Mortgage balance: £190,000
Property value: £185,000
You would have:
£5,000 of negative equity
This can make moving or remortgaging more difficult.
Therefore, negative equity is an important risk with high-LTV mortgages.
Does a 5% Deposit Mean You Only Have 5% Equity?
At the start, your equity will usually be based on the difference between the property value and mortgage balance.
For example:
Property value: £200,000
Mortgage: £190,000
Your starting equity would be:
£10,000
or 5%.
However, this can change.
Your mortgage balance may fall as you make repayments.
Also, the property’s value may rise or fall.
Therefore, your equity changes over time.
What Happens When Your Mortgage Deal Ends?
You may want to remortgage when your initial deal ends.
By then, your mortgage balance may have fallen.
This could reduce your LTV.
For example, you may start with a 95% LTV mortgage.
After several years, your LTV could be lower.
This may give you access to different mortgage deals.
However, property values can also change.
Therefore, a lower LTV is not guaranteed.
Can Overpayments Help?
If your mortgage allows overpayments, paying extra can reduce your mortgage balance faster.
As a result, this could help reduce your LTV.
However, check the mortgage rules first.
Some mortgages limit how much you can overpay without an Early Repayment Charge.
Therefore, check your allowance before making large extra payments.
What About Shared Ownership?
Shared ownership may be another route to buying with a smaller amount of savings.
You buy a share of a property and usually pay rent on the remaining share.
However, shared ownership has its own rules, costs and limits.
Also, schemes vary across the UK.
Therefore, compare the full costs before deciding whether it suits you.
Are There Government Schemes?
Government support for home buyers can change over time.
Also, different schemes may apply in:
Scotland
England
Wales
Northern Ireland
Therefore, check the current official guidance for the part of the UK where you plan to buy.
Do not assume that an older scheme is still available.
Low-Deposit Mortgages in Scotland
Low-deposit mortgages are available in Scotland.
However, the Scottish buying process has some important differences.
For example, properties are often marketed as Offers Over.
Also, the Home Report normally includes a valuation.
This can be important when you have a small deposit.
Offers Over and Your Deposit
Suppose a property has a Home Report value of:
£200,000
However, you agree to pay:
£215,000
A lender may base its mortgage on the value it accepts rather than simply the amount you offered.
Therefore, you may need to pay the difference yourself.
With a small deposit, finding this extra money could be difficult.
This is an important point for buyers in Scotland.
A Scottish Example
Suppose:
Home Report value: £200,000
Purchase price: £210,000
You want a mortgage based on 95% of the accepted £200,000 value.
That would be:
£190,000
However, the purchase costs:
£210,000
Therefore, you would need:
£20,000
from your own money before allowing for other buying costs.
This is much more than a simple 5% deposit of the purchase price.
Therefore, buyers should understand both the purchase price and the lender’s accepted value.
Don’t Forget Property Taxes
Property taxes can also add to the amount you need.
The system depends on where you buy.
For example, Scotland uses Land and Buildings Transaction Tax (LBTT).
England and Northern Ireland use Stamp Duty Land Tax (SDLT).
Wales uses Land Transaction Tax (LTT).
Rates and allowances can change.
Therefore, check the current rules before working out your final budget.
Should You Use All Your Savings as a Deposit?
Not necessarily.
Suppose you have:
£25,000 saved
You could use all of it towards the deposit.
However, you may then have nothing left for:
- legal costs
- moving
- repairs
- furniture
- emergencies
Therefore, a slightly smaller deposit may sometimes leave you in a stronger overall position.
However, it could also increase your LTV.
So, compare both options carefully.
Is a Low-Deposit Mortgage Right for You?
A low-deposit mortgage may be worth considering if you want to buy sooner.
However, think about the wider costs.
Ask yourself:
Can I comfortably afford the monthly payments?
Could I manage if my costs increased?
Do I have money for buying costs?
Will I have any savings left afterwards?
Could I save a larger deposit without waiting too long?
These questions can help you decide whether buying with a small deposit is right for you.
Before Applying
It can help to check five things.
1. Your Deposit
Work out how much you have available.
Also, keep proof of where the money came from.
2. Your LTV
Work out how much of the property value you need to borrow.
3. Your Affordability
Check whether the monthly mortgage payment fits your budget.
4. Your Other Costs
Allow for legal costs, taxes, surveys and moving expenses.
5. Your Emergency Savings
Think about how much money you will have left after buying the property.
Together, these checks can give you a much clearer picture.
The Key Point
You do not always need a large deposit to get a mortgage.
Some mortgages may allow you to buy with a deposit of 5% or 10%.
This can make buying a home possible sooner.
However, a smaller deposit normally means a larger mortgage and a higher LTV.
As a result, your mortgage rate may be higher. Also, you may have less protection if property prices fall.
Therefore, do not look at the deposit alone.
Consider the mortgage payment, interest rate, buying costs and money you will have left afterwards.
Most importantly, make sure the mortgage remains comfortable for your budget.
A smaller deposit can help you buy sooner, but the whole mortgage still needs to be affordable.