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How much deposit do I need for a mortgage?

Is a 10% deposit enough? How much deposit do I need to secure a mortgage? Things are a little confusing at the moment, so we're breaking it down for you.

Deposits have been in the news a lot recently — for good reason. With a hot property market and the potential to save a ton on stamp duty, a lot of first time buyers are looking to get on the property ladder. But one question is coming up again and again: How much deposit do I need? 

Figuring out how much of a deposit you need to put down on a house used to be fairly straightforward — they could range from 5% to 20% (or even higher), but as a general rule 10% was a safe bet to save for. But suddenly, buyers are finding that mortgages for 10% deposits may not be an option. And then they are again. So what’s going on? It all has to do with the current state of the housing market. So we’ll break it down for you. 

It’s safe to say that it’s been a little bit of a roller coaster since lockdown began. In fact, as far back as June we were hearing about 10% deposits disappearing off the market. But let’s roll things back — what’s the significance of a deposit and why does it matter so much? 

A deposit is the amount of the home that you are able to put down in cash. You normally have to be able to buy a certain percentage outright so a bank or lender feels comfortable giving you a mortgage for the rest.

As we said, normally 10% was considered a good estimate to save for. But is a 10% mortgage enough now? And why is it changing? 

It’s not impossible to get a 10% mortgage... it’s a matter of keeping your eyes peeled and being able to move quickly. "

The current market

Banks use the deposit size as one way of controlling how many mortgages they’re lending out. They’ll have a range of mortgages you can choose from, depending on how large of a deposit you have and how long you want to borrow for, but if they only accept bigger deposits it means that they’ll be giving out fewer mortgages.

Why would they want that? Well, after the lockdown froze the property market, there has been a huge increase in demand — both because of the stamp duty holiday and because the property market was allowed to open up again. 

So, at the moment, 10% mortgages appear and disappear as banks try to balance the exponential demand with the possibility of future risk if the market goes down. 

Moving quickly

This can leave first-time buyers in a difficult position. Many of them have spent years saving for a 10% deposit — which was always considered a safe amount to get a mortgage — and now find they’re unable to secure a mortgage.

But it’s not impossible to get a 10% mortgage — as we said, they’re coming on and off the market, so it’s a matter of keeping your eyes peeled and being able to move quickly. 

In fact, Emma Faulkner, 31, was recently featured in The Times after Strike Financial Services managed to snag her a 10% mortgage during a fire sale from TSB — but only because both she and her Strike mortgage agent acted fast. 

“Banks are facing huge demand from wealthier borrowers looking to remortgage, which is part of the reason they are restricting low-deposit lending,” the article explained. “Borrowers who have built up a significant amounts of equity in their homes pose far less risk than cash-poor first-time buyers, and are easier to underwrite.” 

The good news? It’s an unprecedented time for the housing market — demand is the highest on record and properties are flying off the shelves. But things will probably cool down and go back to normal if the economy turns or after the stamp duty holiday ends in March 2021. Some experts say that the market could even crash. Either way, when things slow down expect to see more mortgages come on the market. Until then, you’ll have to keep your eyes peeled and be ready to pounce. When in doubt, always talk to an expert. That’s what we’re here for. 

Want more on how deposits and mortgages work? Check out our first-time buyer's guide.

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