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You may only need a 5% deposit to buy a home, although the amount required depends on your financial circumstances and the mortgage lenders available to you.
For first-time buyers, this can make purchasing a property possible with a smaller amount saved. If you’re buying a £200,000 home, a 5% deposit would be £10,000, leaving £190,000 to borrow through a mortgage.
Saving a larger deposit can give you access to more mortgage deals and potentially better interest rates, although you don’t necessarily need to wait until you’ve saved 10% or 20% before buying.
There are also mortgage products available with less than a 5% deposit, including certain no-deposit options, subject to specific eligibility requirements.
Why Does Your Mortgage Deposit Matter?
Your deposit affects how much you need to borrow and the mortgage products available to you. Lenders use something called loan-to-value (LTV) to calculate how much of a property’s value you’re borrowing.
If you buy a £200,000 home with a £20,000 deposit, you’ll need a £180,000 mortgage. This means you’re borrowing at 90% LTV.
Mortgage products are commonly available at different LTV levels, including 95%, 90%, 85% and 80%.
A larger deposit can give you access to more competitive interest rates and reduce the amount you’re borrowing, which may lower your monthly repayments.
It’s worth comparing the options available with your current savings against what you could get with a larger deposit, particularly if saving the difference would mean delaying your purchase.
Where Can Your Mortgage Deposit Come From?
Your deposit doesn’t necessarily have to come entirely from your own savings. Lenders can consider different sources of funds, depending on the circumstances and the evidence available.
Personal Savings
Money saved from your earnings is one of the more straightforward ways to build a deposit.
You may also be able to use savings from a Lifetime ISA, including the government bonus, if you’re eligible and the property meets the scheme’s requirements.
Lenders will generally want to see evidence of the savings and how the money has accumulated.
Gifted Deposits
A family member may be able to contribute towards your deposit, helping you buy a property sooner.
A gifted deposit generally needs to be given without an expectation of repayment, and the person providing the money may need to sign a declaration confirming this.
Some lenders have restrictions on who can provide a gifted deposit, so it’s worth checking before relying on the funds.
Discounted Property Purchases
If you’re buying a property below its market value, some lenders may consider the discount as part or all of your deposit. This can apply to certain family purchases and eligible Right to Buy mortgages.
Not every discounted purchase qualifies, and lenders will have their own requirements around the arrangement.
How Do You Prove Where Your Deposit Came From?
Mortgage lenders and conveyancers need to establish where your deposit funds originated. If you’ve saved the money yourself, bank statements may be enough to show how the deposit has built up over time.
Larger payments from an inheritance, property sale or gifted deposit may require additional documentation confirming where the funds came from.
It’s worth keeping any relevant records, particularly where money has recently been transferred between accounts.
Having this information ready can help prevent delays during your mortgage application and the legal work involved in buying a home.
Finding Out How Much Deposit You Need
The deposit you need will depend on the property you’re buying, your income and the mortgage options available for your circumstances.
If you’re a first-time buyer, our mortgage advisors can help you establish how much you could borrow alongside the deposit you’ve already saved.
During your free initial mortgage appointment, we can compare the options available with different deposit amounts, helping you understand if you’re ready to buy now or if saving a little more could make a worthwhile difference.
