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How much deposit do I need?

Wondering how much you’ll need to save for a deposit on a house? Let us help you work out what you need, and why.


Looking to buy a property in the UK? You’re probably going to need two things:

1) a deposit and

2) a mortgage to foot the rest of the bill.

But just how much deposit will you need? The long and short of it is: the bigger the initial deposit the better - it’ll save you money in the long run. But let’s break it down simply from start to finish.

How does a deposit work?

When you own a property with a mortgage your ownership can be split into two parts:

  1. The deposit: this is how much actual equity you have in the property. How much you own outright. 

  2. The other portion of the property has been purchased with a mortgage, which is a loan against the value of the house.

This is worked out as a percentage or ratio - calculating how much of the purchase is a deposit and how much is borrowed money in the form of a mortgage

Working out your deposit

This calculation between deposit and borrowed money is known as the “loan to value ratio” or LTV. The LTV is just the ratio of what you borrow as a mortgage versus how much you pay as a deposit. All it means is the better the LTV, the better the lending rates you might be able to secure.

For example:

You pay a deposit of £30,000 for a property worth £300,000.

You get a mortgage of £270,000 to pay for the rest.

Your deposit covers 10% of the house price.

So, your LTV is 90%. In other words, you have a 90% mortgage.

The better the LTV, the better the lending rates you might be able to secure. "

What mortgage can I secure?

Though you used to be able to secure a mortgage with 0% deposit, the minimum you would get today would be a 95% mortgage, in other words you’d be paying a deposit that’s equal to 5% of the total value of the house. If you need to calculate this, you can just multiply the house value by 0.05.

So a house is worth £254,000…

254,000 x 0.05 = 12,700

So a 5% deposit on a property worth £254,000 is £12,700.

Whilst this looks like a pretty good deal, 5% deposits are few and far between these days. Plus you will be offered deals with higher than average interest rates and bigger monthly repayments too.

You will usually need a minimum of 10% deposit to get a good choice of mortgages, a 20% deposit will get better rates and 40% and above will ensure the market leading deals. Got a 60% deposit or more? Well done you! You’ll secure a deal with the smallest monthly repayments and the lowest interest rate. 

What about if I only have a small deposit?

Under the Mortgage Guarantee Scheme, which goes until the end of 2023, you should still be able to get a mortgage with a 5% deposit (meaning your lender will give you a loan worth 95% of the value of your home). However, banks prefer you to have a larger deposit, particularly if you’re a first time buyer. 

A first time buyer tends to need a bigger deposit because they have no track record of ownership, meaning it’s more risky for the bank. But lenders are requesting higher deposits across the board.

Why do lenders want bigger deposits right now?

We are in economically turbulent times, particularly following the pandemic, the war in Ukraine and the mini-budget in 2022. Though many experts predicted a large housing crash in 2023, the reality has so far been much less dramatic than that. House prices are unpredictable, and are dropping in some areas, but we’ve swerved a “crash” so far. 

But back to your deposit. You might be wondering: why does a wobbly housing market and economy mean I need a bigger deposit? Well, a more substantial deposit is required at the moment for 2 main reasons: 

  • To prove you have financial stability, even in these slightly turbulent times, and particularly given the cost of living crisis caused by increased inflation. Lenders want to know - are you going to be able to make your mortgage repayments? Having a larger deposit not only proves your financial strength, but also brings down your monthly repayments.

  • A larger deposit also means less risk for the mortgage company. This is because mortgages are a “secured loan”. What does that mean? It basically means the property is used as collateral against the loan - basically if you can’t make your repayments on the mortgage, the lender takes your home. Why does that mean I need a bigger deposit? Well, when house prices are going down, it’s a bigger risk for lenders. They could repossess your home, but the home is worth much less than the amount they lent you. This is called negative equity. We know that sounds quite scary, but don’t worry it’s not very common, particularly if you plan to stay in your home for a while, not resell immediately. So, that’s why they want a larger deposit. The bigger the deposit, the more the loan is protected for the lender.

How will I benefit from putting in a larger deposit?

If you have a bigger deposit, you will not only have more choice over which mortgage plan is best for you, but lenders will also be more likely to offer you lower monthly repayments and lower interest rates. So: YES saving can be boring and painful, but it might be worth saving for that bit longer to ensure a bigger deposit, and save money later down the road. 

The higher the deposit, the lower the interest rate. Lenders organise interest rates into bands, so your deposit dictates which band of interest rate you fall into. 

The general rule for rate bands (in 2023) looks like this:

  • 10% deposit (90% LTV) – highest interest rates

  • 25% deposit (75% LTV) – lower interest rates

  • 40% deposit (60% LTV) – lowest interest rates

Obviously, a 60% deposit is a major win, as it guarantees you the best lending rates where the monthly repayments are smallest and interest rates are lowest.

YES saving can be boring and painful, but it might be worth saving for that bit longer to ensure a bigger deposit, and save money later down the road."

What are “interest rates” in terms of mortgages?

A mortgage interest rate is the amount of interest you’ll pay on the money you’re borrowing. The bank needs an incentive to lend you the money, so it’s basically a fee for taking out a loan. It’s calculated as a percentage, and the percentage or rate will change depending on the mortgage you’ve negotiated. The larger the deposit, the smaller the interest rate, because the loan is less risky for the lender. 

Your mortgage interest rate depends on a few factors, as well as the size of your deposit:

  • Your personal circumstances (like income)

  • The type of mortgage you’re looking at (e.g. fixed or variable)

  • The national base rate for interest rates (the rate set by the Bank of England, which dictates how expensive it is to borrow money across the board).

Interest rates are currently high in 2023, as the BoE continue to hike them up in a bid to reduce inflation. Rising interest rates should reduce inflation, which is the government’s aim. But for now, interest rates remain high at 4.25%, which makes it expensive to borrow money.

How can I save for a deposit?

There are several ways to save for a deposit, from trying to get the most out of your money by investing it, to just simply using some tips and tricks to reduce spending. Here are some ways to save:

  • Budgeting: there are plenty of apps that will help you save, don’t try to look the other way and hope you’ll have money saved at the end of the month. If you’re not budgeting, the chances are you’re not saving as much as you could be.

  • Regular saving: if you’re financially in the position to do so, why not set up a regular direct debit from your current account into your savings account. 

  • Lifetime ISAs: this is a saving scheme where the government puts in £1 for every £4 you save. You can invest up to £4000 a year. 

  • Make changes to your work: are you due a promotion at work? Maybe it’s time to ask for it! You can compare salaries online - if someone at a different company with the same job is paid a lot more than you, it could be time to apply elsewhere. But remember, you’ll want to be employed when you’re applying for a loan.

  • Living situation: in terms of living situations - is your rent too expensive? The current rental market, plus the cost of living crisis, means saving is becoming less and less realistic. It’s not unusual for first-time buyers to move back in with parents, or with relatives/friends at a reduced rental rate, in order to save for a deposit.

I have my deposit, how can I calculate what mortgage I’ll be able to get?

You’ve got your deposit saved - well done! You’ll now want to go and see a lender or mortgage advisor, who will help you arrange a mortgage in principle. A mortgage in principle is the first step to getting a loan for a house. It’s essentially a lender saying: “in principle we would lend you £X amount of money towards your home”. In order to work this out they look at not only your deposit, but also your previous addresses, income and outgoings as well as things like your credit rating.

What other obstacles are there to getting a loan?

So you have a chunky enough deposit to start browsing for properties…but what other factors do you need to consider when you’re thinking of buying? There’s no point in saving up for a deposit if you don’t have your other ducks in a row. These ducks include:

  • Your income: you may have inherited some money, won the lottery or received a gift from a wealthy relative (if you live in a Jane Austen novel, for example). BUT you still need proof that you’ll be able to make repayments. Lenders will look at your salary and tend to require:

    • 4 times your annual income for a single resident.

    • 3 times the joint salary for joint applicants, or 4 times one salary plus the second salary.

  • Your outgoings: have a weakness for handbags? Have some unsettled debts? Or simply require a large amount of childcare because of your full time job? These will all be taken into consideration when your lender looks at your application. Though something like childcare may be non-negotiable, look at settling your debts and capping unnecessary outgoings.

  • Type of employment: lenders perceive self-employment as more of a risky loan. This is because you don’t have the guarantee of a steady salary. Be sure to get all your accounts in order, so you can prove that despite being a self-employed skateboarder, you’re also a really successful self-employed skateboarder, who gets paid regularly every month. 

  • Credit rating: you’ll need a healthy credit rating in order to secure a good loan. Again, don’t spend years saving a deposit, only to struggle to find a loan because of a poor credit score. There are plenty of ways to improve your credit score, and doing so will open doors for you in terms of borrowing money.

So, in short, you want to aim for a deposit that is at least 10% of the total property price. The higher the deposit, the less the monthly repayments and the lower the interest rate will be. We know it can be hard to save at the moment, but you'll get there!