How much deposit do I need for a mortgage?
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Joanna from Exeter
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Finance questions and answers
Question
I’m in the process of saving up for my first home, and I was wondering how much deposit I would need for a mortgage? I’ve always thought it was 10%, but I keep hearing that you only need 5%. On top of that, my parents are suggesting I save up for more than a 10% deposit, so I’m now very confused and any information would be greatly appreciated!
Answer
Pulling together a deposit is one of the big challenges for any first time buyer, especially when having to contend with high house prices and all the other costs that come with buying a property.
There are more options now for those with small deposits than there were even just a couple of years ago. The introduction of the Help to Buy Guarantee boosted the number of lenders offering rates up to as much as 95% of the purchase price. It has also allowed others to enter the market and launch products for those with small deposits, even where the lender doesn’t intend to rely on the Government backed guarantee so it makes sense to shop around for your mortgage.
However, interest rates on these deals are higher than for buyers with a bigger percentage to put down. Therefore if you can stretch to a bigger deposit of 10% the rates on offer will be substantially lower, perhaps as much as 1% or more below those on offer at 95% of the purchase price.
Every 5% more on the deposit the more options you will have and at better interest rates so the rule of thumb is that the bigger the deposit the better. That, of course, is easier said than done and you have to balance the benefit of being able to buy sooner, especially if prices are rising in your area.
David Hollingworth
London & Country Mortgages
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