How Much Deposit Do You Need for a Mortgage?

If you’re thinking about buying a home, one of the first financial considerations is the deposit. The deposit is seen as the biggest hurdle for many homebuyers, especially first-time buyers, and can influence the type of mortgage you’re offered. Understanding how much deposit you need for a mortgage is essential for making the right decisions for you.  

In this blog, we’ll explore how the deposit is calculated, factors that affect the size of your deposit, and how the independent mortgage brokers here at RM Mortgage Solutions can help you find the right mortgage for your situation. 

How is the Mortgage Deposit Calculated? 

The mortgage deposit is calculated as a percentage of the property’s purchase price. The higher your deposit, the lower the loan-to-value (LTV) ratio, which can result in a better mortgage deal.  

For example, if you are buying a property worth £200,000 and the lender requires a 10% deposit, you will need to provide £20,000 as your deposit, with the remaining £180,000 covered by the mortgage.  

Deposit Amount = Property Price x Deposit Percentage 

• A 5% deposit would mean £10,000 on a £200,000 home. 
• A 10% deposit would mean £20,000 on the same property. 
• A 20% deposit would mean £40,000, which is typically recommended for more favourable rates and lower monthly payments. 

Factors That Affect the Size of Your Deposit  

There are several factors that can affect how much deposit you’ll need for a mortgage, including: 

1. Property value: 

Naturally, the higher the property value, the higher your deposit will need to be. For example, a £300,000 property with a 10% deposit would require £30,000, while the same percentage on a £500,000 house would be £50,000.   

2. Lender requirements: 

Different lenders have different requirements, especially when it comes to loan-to-value (LTV) ratios. Some lenders may offer mortgages with a 5% deposit, but usually, the higher your deposit, the better the interest rate you can secure. 

 3. Credit score: 

Your credit score plays a crucial role in determining how much deposit you need. If you have a strong credit score, lenders may be more inclined to offer you a loan with a lower deposit. In contrast, mortgages with poor credit might require a larger deposit to offset the perceived risk to the lender.  

4. Government schemes: 

Programs like Help to Buy or Right-to-Buy (RTB) can help first-time buyers with a smaller deposit, possibly as low as 0% in some cases. These schemes are available to certain buyers and can help ease the financial pressure of securing a deposit.  

5. Shared Ownership: 

Shared Ownership firms can help first-time buyers with a smaller deposit, sometimes as low as 5%. These schemes can help first-time buyers because they only need to purchase e.g. 50% of the property now, therefore requiring a lower deposit, and purchase the remainder in the future (although rent is also payable on the part of the property not owned). 

How RM Mortgage Solutions Can Help  

Here at RM Mortgage Solutions, we understand just how overwhelming it can be to navigate deposit requirements. Whether you're looking to secure your first home or remortgage, our independent mortgage brokers are here to help. We offer tailored mortgage advice services, ensuring that you get the best deal based on your deposit, financial situation, and goals.  

If you're unsure about the size of the deposit required, we can help you calculate it and explore the mortgage options available to you. Our expert team includes mortgage advisors in Birmingham, Wolverhampton, and beyond, ready to offer support and guide you through the mortgage process. Watch the video below to find out what we can do for first-time buyers.

 

Ready to explore your options? Get in touch with us today to discover the best mortgage solution for your unique needs.