How Much Deposit Do I Need to Buy a House?
Before you can get a mortgage to buy a house or a flat, you’ll need to save for a deposit. The type of mortgage you can get depends on how much money you can put down upfront.
Typically, a deposit of at least 10% of the property value is needed, and this is a figure that many people opt for purely because of affordability.
Deposits can range in size, it’s simply a matter of what you can afford to borrow from the lender. The higher the deposit, the less you’ll need to borrow.
Yet, for first-time buyers, it’s not always easy to find the money and understanding how much deposit is needed, and the rules surrounding deposits can be tricky.
What Can I Afford?
To get a mortgage, you’ll generally need at least 10% of a property’s value. The mortgage lender then lends you the other 90%.
A property costing £200,000 would, therefore, require a deposit of £20,000, and the mortgage lender will lend you the remaining £180,000, providing you meet their affordability criteria.
Many lenders since 2014 have increased their level of scrutiny before approving any new lending.
A mortgage lender will typically analyse particular affordability criteria such as:
- Your total gross income
- Your credit history
- Disposable income
- Employment status
- Any allowances you may be entitled to
First-time buyers face a tough housing market that is uncertain and difficult to navigate. If you’re looking to buy a home, you should try to get the largest deposit you can so you can borrow less from the mortgage lender.
Borrowing less means:
- Cheaper monthly repayments – the less you borrow, the less you pay back each month
- Increased chances of being accepted for a mortgage – lenders prefer larger deposits as its less risky
- Less likely to fall into negative equity
Is My Deposit Different Depending on Where I Choose to Live?
Not every area is the same when it comes to mortgages, with London and the south-east of England seeing higher deposits than most other areas in the UK.
To give you some idea of how much you’ll need to save for your deposit, in London, a savings pot of around £40,000 will usually be around 10% of the property value. To give some perspective on this, a deposit of £40,000 in one area of Scotland would cover around 16% of the property value.
The Bank of Mum and Dad
If you’re not a first-time buyer, you’ll most likely be using the funds received from your property sale to use as a deposit for your new home. Increasingly, many first time buyers will pay their deposits out of money gifted to them from family members – also known as The Bank of Mum and Dad.
Whichever way the deposit is paid; the mortgage lender must be notified as they need to be certain of where the funds came from before they can proceed with the transaction.
The mortgage lender will need to be notified if:
- A family member is helping the buyers with funds for the deposit
- The buyer is using their own funds, which must be evidenced in the form of bank statements, as a way to prevent money laundering.
Our team of expert Conveyancing Solicitors can advise you on this when securing your first mortgage. We offer a friendly service and we’ll aim to make the process as smooth as possible.
We can also advise you on how you will be affected by Stamp Duty Land Tax.
Struggling to Save a Deposit?
There are actually lots of options available to help buyers take their first steps onto the property ladder, including:
- Help to Buy ISA
- Help to Buy Equity Loan
- Lifetime ISA
- Shared Ownership
- 100% mortgages
- The Bank of Mum and Dad
Whichever option you choose, our national team of Conveyancers and Conveyancing Solicitors can guide you through every step of the way.
Simpson Millar is a national law firm with over 500 staff and offices in Bristol, Cardiff, Kingston-upon-Thames, Lancaster, Leeds, Liverpool, London, Manchester, Morecambe and Southport.