How Much Do I Need For a Mortgage Deposit?

Federal Home Loan Bank Board Building

While the home mortgage market isn't as buoyant as it used to be a few years back and the days of the 100% or even 125% mortgage are well and truly over.  For those who can get a decent deposit together, low rates of interest mean that now is an ideal time to finance a mortgage.  The key question however for many is how much do I need to save in order to get a mortgage?

In general terms, most banks and financial institutions offer mortgage products for borrowers with access to a 10% deposit.  This stated, larger deposits are often preferred and this is often reflected in the considerably lower rates of interest charged.  In addition, those looking for a specialist kind of mortgage such as a buy to let mortgage may require significantly more, usually 25% as a bare minimum.

When calculating the amount needed, use the concept of loan to value (LTV), this means the deposit is calculated as a percentage of the value of the property, not the value of the mortgage.  For instance if the property is valued at £100,000 and a bank is willing to offer you 90% LTV, this means you need £10,000 or 10% of the value of the property.

Should I Get a Mortgage With a 10% Deposit?

While most people can get a residential mortgage with a 10% deposit, this may not be the best option if it is at all possible to go the extra mile and save up that 20% or 25% deposit.  For instance, at the time of writing HSBC offered a tracker rate mortgage at 4.7% for those with a 10% mortgage.  However, this declines to 3.0% for those with a 20% deposit and drops further to 2.6% for those who can manage a 30% deposit.

Considering that on a mortgage loan of £100,000 a 1% difference in the rate of interest levied represents £1,000 in charges, it’s not hard to see how saving up that extra deposit will make a large difference to your monthly repayments.

In addition, while many banks and financial institutions may have mortgages available to those with a 10% deposit, whether a mortgage will be issued depends on a range of other factors including your financial history, credit rating and household income.  In general, a larger deposit is usually preferred and you will have a greater chance of success with a 20% deposit or more than with a 10% deposit.  

As such, the short answer is that most prospective homebuyers looking for a residential mortgage will be able to get a loan with a 10% deposit.  However, the cost of borrowing and general lack of liquidity in the sector means that it may be much better to aim for that 20% or 25% deposit before setting your heart on that dream home.