What Deposit is Required for a UK Mortgage?

Understanding Mortgage Deposits in the UK

When purchasing a property in the UK, one of the most significant financial considerations is the deposit required. The amount needed depends on various factors, including the type of mortgage, the lender’s criteria, and the buyer’s financial situation. Mortgage deposits are typically expressed as a percentage of the property’s value, and the larger the deposit, the more favourable the mortgage terms tend to be. Understanding the different deposit requirements for various mortgage types can help UK homeowners plan effectively for property ownership.

First-Time Buyer Mortgages

First-time buyers in the UK generally need a deposit of at least 5% of the property’s purchase price. This means that for a home valued at £250,000, a deposit of £12,500 would be required. However, a larger deposit of 10% or more can provide access to better interest rates and lower monthly repayments.

The government has introduced several schemes to help first-time buyers with deposit requirements, including the First Homes Scheme and Lifetime ISA savings incentives. Additionally, some lenders offer 100% mortgages backed by family guarantors, eliminating the need for a deposit, though these come with strict eligibility criteria.

Standard Residential Mortgages

For homeowners moving to a new property or remortgaging, the typical deposit required is between 10% and 25%, depending on the lender and the borrower’s credit history. A higher deposit leads to a lower loan-to-value (LTV) ratio, which reduces risk for the lender and results in better mortgage rates. Buyers with larger savings or significant equity in an existing home can benefit from reduced interest rates and lower monthly repayments.

Buy-to-Let Mortgages

Buy-to-let mortgages, designed for individuals purchasing properties to rent out, require larger deposits than standard residential mortgages. Most lenders set a minimum deposit of 25% of the property’s value, though some may accept 20% in certain cases. A larger deposit of 40% or more can secure more competitive interest rates.

Buy-to-let mortgages are considered riskier due to fluctuating rental income and the potential for void periods where tenants are not in place. Lenders often require landlords to prove that the expected rental income will exceed mortgage repayments by a set percentage to qualify for a loan.

Help to Buy Mortgages

The Help to Buy Equity Loan scheme, available to first-time buyers purchasing new-build homes, allows buyers to secure a mortgage with a 5% deposit. Under the scheme, the government provides an equity loan of up to 20% of the property price (or 40% in London), which reduces the mortgage amount required from the lender.

Although the scheme makes homeownership more accessible, it comes with conditions, including restrictions on property value and repayment requirements on the government loan after five years. The Help to Buy scheme is scheduled to be phased out, making alternative low-deposit options more relevant for new buyers.

Shared Ownership Mortgages

Shared ownership allows buyers to purchase a percentage of a property (usually between 25% and 75%) while paying rent on the remaining share. The deposit required is based on the portion of the home being purchased rather than its full market value.

For example, if a buyer purchases a 50% share of a £200,000 property (£100,000 mortgage), a 5% deposit would be £5,000. This makes shared ownership a viable option for those struggling to save for a larger deposit while still aiming to step onto the property ladder.

Guarantor Mortgages

Guarantor mortgages allow buyers to secure a home loan with little or no deposit by having a family member or close relative act as a guarantor. The guarantor agrees to cover repayments if the borrower is unable to do so, reducing the lender’s risk. These mortgages are particularly beneficial for first-time buyers who may not meet standard deposit requirements but have financial support from family.

While guarantor mortgages can enable homeownership with a 0% deposit, they carry significant risks for the guarantor, who may be liable for repayments if the borrower defaults. Lenders may also require additional security, such as placing a charge on the guarantor’s property or savings.

New Build Mortgages

Purchasing a new build home often requires a higher deposit than buying an existing property. Many lenders view new builds as higher risk due to potential fluctuations in value, requiring deposits of 15% to 25%. Some developers offer incentives such as deposit contributions or part-exchange options, but these should be carefully assessed alongside mortgage terms.

High-Net-Worth and Professional Mortgages

For high-net-worth individuals and professionals with strong earning potential, some lenders offer bespoke mortgage solutions with flexible deposit requirements. Specialist lenders may accept deposits as low as 10% for professionals in medicine, law, or finance, recognising their future earning capacity. High-net-worth individuals with significant assets but irregular income streams may also qualify for customised mortgage options with lower deposit thresholds.

Finding the Right Mortgage Deposit Option

The amount required for a mortgage deposit varies depending on the type of mortgage, the lender’s criteria, and the buyer’s financial circumstances. While first-time buyers may access schemes that reduce deposit requirements, buy-to-let investors and new build purchasers often need higher deposits. Exploring different mortgage options, seeking financial advice, and comparing lender requirements can help UK homeowners find the most suitable path to securing their property.