One of the main lender requirements when getting a mortgage is the mortgage deposit. This is the amount you will have saved up to pay for your home upfront, with the mortgage covering the rest.
Generally, the larger the deposit the better but 10% of the property value is a standard amount. The deposit amount will be the initial amount of equity you will hold in your property. That amount will increase as you repay more of your mortgage.
In this guide, we’re discussing some of the main points when it comes to mortgage deposits. We want you to have all the information you need when you apply for your mortgage.
Mortgage deposit rules
There will be rules and requirements that lenders apply when it comes to mortgage deposits. The requirements can vary depending on individual lenders but there are some factors lenders commonly ask about including:
- Minimum amount of deposit (at least 10% with most lenders and mortgage types)
- Where your deposit money is from (savings, gifted, loans etc)
- What type of mortgage you need (first time buyer mortgages for example may only need a 5% deposit under the Help to Buy: Equity Loan scheme)
How much deposit for a mortgage?
How much you need to pay for your mortgage will depend on the type of mortgage you want plus individual lender requirements.
Generally, a lender will want you to put down a deposit of at least 10% of the property’s overall value. First-time buyer deposits can be smaller than this with certain lenders. First-time buyers may be able to take out a 95% loan to value (LTV) mortgage, meaning they will only need a 5% deposit.
Certain mortgage types need you to put down a larger deposit than the standard 10% to be approved. Buy to let mortgages for example will usually need a deposit of around 25% at least.
Can you get a mortgage with no deposit?
In some cases, you may be able to take out a 100% loan to value (LTV) mortgage, meaning no deposit is required at all. These are difficult to come by and only offered in specific circumstances.
If you want to take out a mortgage without a deposit, it is worth consulting with an experienced mortgage broker. Specialists such as us will be able to search hundreds of deals across the market, to find the right lender offering this mortgage type.
Low deposit mortgage
If on a lower income or you have a lot of expenses, you may find saving for a deposit difficult. If you are struggling to save a large enough deposit for your mortgage, there are still ways in which you can buy your home.
A guarantor mortgage can be a great way for someone with limited funds to get their mortgage approved. This is especially true where they might struggle with repayments on their own. With this type of mortgage, another person (usually a close relative like a parent) will support your application.
Another good option could be a shared ownership property. These allow you to purchase a percentage stake in the property and pay rent on the rest. This can be seen as a middle step between renting and buying. This will usually mean a lower overall loan is needed for the mortgage and less will be needed for the deposit.
Buy to let mortgage deposit
With a buy to let or BTL deposit, you will normally need a larger deposit amount than with a standard mortgage. The higher deposit for a buy to let property is due to the additional risk of lending with this type of mortgage.
This is because you may have multiple mortgages. The payment of this one will rely heavily on the profit from rental income, which can be unpredictable.
You could have times when you are between tenants. Lenders will want to know you are financially stable enough to cover the repayment cost in the meantime.
Learn more about buy to let mortgages.
How much deposit for a mortgage with bad credit?
If you have a history of poor credit or debt, you may struggle to get a mortgage application approved through high street lenders.
There are lenders available that specialise in this type of mortgage. You will likely still be able to get a mortgage, if you consult a specialist broker who knows where to look. We partner with several great lenders that are willing to loan to buyers with a bad credit history buy a home.
It can help your chances of application approval if you are able to save a higher deposit than the standard 10%. This can show lenders you are now more financially stable and therefore less of a risk when it comes to lending.
Speak to our experts for more advice or check out our page on poor credit mortgages for further information.
Gifted mortgage deposits
Sometimes you can be gifted the amount you need to cover your mortgage deposit. Whilst extremely helpful, lenders can have limitations and requirements when it comes to a gifted deposit. The main types of gifted deposits are:
- Family gifted deposits
- Friend gifted deposits
- Vendor or seller gifted deposits
- Builder or developer gifted deposits
- Landlord gifted deposits
With family member or friend gifted deposits, lenders may wish to see legal paperwork (gifted deposit letter). This is to prove that the deposit is a gift and is not a loan required to be paid back.
Vendor, builder/developer or landlord gifted deposits refer to when you receive a discount on a property price. The mortgage deposit is then fully or partially covered by the difference in equity.
Certain lenders will require further information as to why the discount has been offered. This is in case it is because of a problem with the property (e.g. structural damage).
Vendor gifted deposit
In some cases, the person selling the property sells to the buyer at less than market value.
The difference between the sale price and property value is then technically ‘gifted’ by the seller.
This amount can cover all of part of the deposit. The mortgage is referred to as being a vendor (seller) gifted equity mortgage and a ‘concessionary purchase’.
It is important to note that with concessionary purchases, the sale can be liable for inheritance tax (IHT) but only if the original owner was to die within seven years of the purchase. For more advice on property purchase taxes, it is best to consult an accountant or financial advisor.
It can be harder to get this type of mortgage. It is a good idea to speak to a broker with a solid knowledge of this mortgage type. An experienced broker will know the best lenders to approach when it comes to non-standard property purchases.
Learn more about concessionary purchases by reading our guide or speaking to one of our mortgage experts.
Large deposit mortgage
A larger deposit can help you to access better mortgage rates and deals. It is a good idea to try and save a larger deposit than the minimum requirement. This shows lenders you are financially stable and responsible enough to be able to save a significant sum.
It is also beneficial for you as it means you will need to repay less on your mortgage overall. You can also often access better interest rates.
What is considered a high deposit amount can be anything from around 25% of the property value and upwards.
Can you use a loan for a mortgage deposit?
It can be possible to use a loan for your mortgage deposit. Some lenders may not like the idea of you needing to repay both a mortgage and loan. They may prefer to see proof of financial security through using your own savings account, opposed to funds gathered elsewhere.
If you have a generally good credit history, you should still be able to find lenders willing to loan to you. As long as you don’t have excessive debts with credit cards and personal loans, it may be possible to use your loan to fund a mortgage deposit.
If you want to use a loan to pay for your deposit, speak to a specialist broker such as us. We can help you find the lenders most willing to approve your application under these circumstances.