How much do I need for a deposit?

So most people assume that they’ll need a deposit to buy a house but is this true? Well for the most part the answer is yes!

If you are just looking at a standard residential property (a nice house or flat) then most lenders will be looking for at a minimum a 5% deposit. So on a flat valued at £100,000 a lender would generally not accept anything less than £5,000 for a deposit.

It’s important to keep in mind that other types of mortgage do exist such as 100% mortgages, as the name suggests they do not require a deposit but it’s important to keep in mind that these types of mortgages often come with extra costs, risks and stringent eligibility criteria making them unsuitable for most people who just wish to purchase their first house. You can learn more about 100% mortgages here

For the bulk of people a 5% deposit is the minimum you will need in order to purchase… But don’t worry, there are loads of tools and tips in this article to help you save up one!

So as a general rule, with deposits, more is always better. From the banks perspective, and yours, a bigger deposit means that you own more of your property outright from the beginning and are borrowing less.

So there is less risk to the bank. Think of it like this; lending twenty quid to your mate who you know has loads of money is less risky than lending fifty quid to someone you know cant pay you back. The more of your property you own, the less you are borrowing as a percentage against the value of the property and so the bank is willing to give you better rates…

Which in the real world means you get lower monthly payments!

One thing to keep in mind however, is that as part of their consumer duty, lenders have over the last few years been levelling the playing field a little bit more to help first time buyers get on the property ladder.

So the gap between a 5% deposit and a 25% deposit are not as huge as you may think as a general rule. Simply put a 5% deposit will not get you a raw deal, just a slightly worse one than a larger deposit.

Now this is the question with no quick or easy answer I’m afraid!

Saving a deposit is by means easy! Though as with most things related to buying your own home, as opposed to renting, you will one day be glad you did it!

As I am sure you can imagine, in order to get a mortgage you will need to have an income stream. Saving for a deposit is no different.

All of the advice about saving for a deposit is generally quite simple (but effective). It involves making small (or large if you so wish and can afford it) but most importantly regular contributions to some form of savings account.

Now there are many tools you can use to help make the process go quicker. Such as the “round up” feature many modern banking apps have to help you save money as you spend it day to day…

But probably the best tool at your disposal (if you are a first time buyer aged 18-40) is whats known as a Lifetime ISA.

This is a special Individual Savings Account [ISA] offered by the government specifically to help first time buyers save for a deposit. The big sell of the Lifetime ISA as compared to other savings accounts is the 25% government bonus on your savings. Up to £1,000 every year!

For more information on Lifetime ISA’s you can check out the Gov.uk website page on them here.

So gifted deposits are becoming more and more common and acceptable to lenders in the UK. The often called “bank of mum and dad” can be a great way to help get yourself or your kids on the property ladder if saving for a deposit is not a solution for you.

As a general rule banks have a few conditions for gifted deposits; that the gifter must be a close family member (so no distant Nigerian uncles giving money sadly!) and must also not intend to live in the property or own any interest in it.

This is so the bank can ensure that the money is a gift and not a loan as if you were to borrow money for your deposit then you would technically have borrowed 100% of the property value and lenders do not like this!

It’s important to keep in mind that as the landscape changes in the UK and banks become better placed to the needs of younger, first time buyers (who are often cash strapped) many lenders have relaxed their criteria around gifted deposits and some will now even accept money from people who aren’t directly related to you such as friends or colleagues.