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- Mortgage Advisor, MD
If you’ve been saving up a nest egg for a mortgage, you may be wondering what size mortgage loan your deposit would get you.
Deciding how big a deposit you’ll need for the property and loan type you want is often one of the greatest dilemmas facing would-be homeowners. Is it worth waiting to save up more and get a better deal on a mortgage loan, or is it better to buy a property as soon as you are able?
Getting a mortgage is generally one of the biggest financial decisions most people will make in their life, so it’s well worth taking the time to consider which loan to value (LTV) ratio would work best for you.
The following topics are covered below...
Before you decide how much deposit you’ll need for your mortgage, it’s important you look at how different lump sums would impact on mortgage size and interest rates.
When applying for a mortgage loan, you can calculate the deposit size needed for your mortgage as a percentage of the value of the property you’d like to buy.
Generally speaking, you can get a mortgage worth up to 95% of the property value (although 100% mortgages are possible in exceptional circumstances), so you’ll need at least 5% of the property value saved to qualify for a mortgage. For the average UK house, a 5% deposit would be between £10,000 and £15,000, at the time of writing.
If you’re looking for a buy-to-let mortgage, you’ll need to budget for a considerably higher minimum deposit. The requirement for a buy-to-let mortgage deposit is usually 25% of the property’s value, but this can shoot up to 40% depending on the provider and property type.
However, it’s often a good idea to save up more than the minimum deposit requirements as there’s a trade-off between deposit size and interest paid on your loan.
The mortgages with the best interest rates are available when you have a good size deposit, with 20% often being the hallmark for attractive mortgages. Generally, better deals for mortgages become available every time you move up 5% in deposit size. So when saving for a mortgage, it’s a good idea to aim to hit the 5%, 10%, 15%, or 20% milestones.
The higher the percentage of the property that you can put down as a deposit, the lower the amount of the mortgage loan and interest you’ll have to repay.
An expert mortgage broker can help you determine how much deposit you’ll need for your ideal property and how interest rates vary according to deposit size.
The maximum loan to value ratio for a residential property in the UK is usually 95%, so a £3,000 deposit could enable the purchase of a property worth up to £60,000. A £5,000 deposit could qualify you to purchase a property with a £100,000 value.
However, it’s not uncommon for mortgage applicants without at least a 10% deposit to be turned down by some lenders. This is because deposits that are under 10% of the mortgage loan are considered to be high risk by many providers.
If you’re wondering if you can take out a mortgage with a deposit of just £3-6k, an expert mortgage broker can help you determine whether or not it’s better to wait until you’ve saved more.
A deposit of £10,000 could get you a mortgage up to £200,000; with a £20,000 deposit, you could be eligible to take out a mortgage for a £400,000 property, based on the typical deposit requirements at most UK mortgage lenders.
If you’re a first-time buyer or are struggling to get onto the property ladder, bear in mind that the government’s Help to Buy scheme could offer a further 20% to bring your 5% deposit up to 25%, it would make an even bigger difference if you live in London
While it may be possible to get a mortgage with a small deposit, first-time buyers should bear in mind that there are added costs to buying a property.
Regardless of your deposit amount, your mortgage size will be determined by your financial situation, the type of mortgage you’d like, and what you plan to do with the property.
The good news is that there are mortgage offers on the market to match every deposit size and mortgage need. Searching the market with an online mortgage comparison site can help you get a very rough estimate of how interest rates will vary according to mortgage size, deposit and term length, though this isn’t the best way to compare the market.
In some cases, taking out a mortgage with a smaller loan to deposit ratio could make your money go further.
The table below will give you an idea of how your mortgage size increases along with your deposit, assuming you are eligible for the maximum mortgage loan of 95%.
While this table will give you an idea of the size of the mortgage you could be eligible for, bear in mind that many providers see a 95% mortgage loan as high risk. Whether or not you’d qualify for one will depend on your situation. Speak to a mortgage advisor if you’d like to find out more about which size mortgage loan you are likely to qualify for.
You can use an online mortgage calculator to discover the size of the mortgages available to you, based on how much deposit you have. This will give you a rough idea of how big your mortgage size could be based on your deposit, salary, and outgoings.
However, mortgage lenders will look at many additional factors such as your income and committed spendings when deciding what size mortgage they’d approve.
That’s why financial experts recommend working through a mortgage broker who will understand the details of your affordability and know where to go to get you your best interest rate.
With a 100k deposit you’re in good stead for getting a very large mortgage. Assuming you’re approved for the maximum possible 95% mortgage, you could have funds for properties worth up to £2 million.
However, the reality of the deposit to mortgage loan ratio is often more complex than a surface-level online search will show up. Lenders will want to look at the details of your affordability including occupation, credit score, earning projections, etc.
The advisors we work with are experts in this area and can help you with the right advice on how big a mortgage would make the most sense for you, as well as how to minimise your interest repayments.
You could put down a 10% or 15% deposit to access potentially better rates, but 5% mortgage options are available for first-time buyers through government schemes, flexible lenders and specialise mortgage products.
Mortgage lenders prefer a larger deposit and regard you as a safer bet. You could put down a 5% deposit, though you’ll likely have to meet stricter criteria. If you’re saving up for a deposit, you can get ‘free’ money from the government via a Lifetime ISA.
There are options for customers with a low amount of deposit, which would usually mean not less than 5%, and they include…
You can read more about each of these options through the links above or make an enquiry so an expert broker can go through each of them with you.
Yes. You may also be unaware that some lenders will allow gifted deposits from family, friends and even an employer. Bear in mind that there are more lenders available for those with their own savings than for those who have been gifted a lump sum by family.
However, just because it is deemed as less favourable by lenders, it isn’t impossible for friends or family to gift money to enable you to buy a property. If a person is gifting you some money, they will need to complete a gifted deposit letter, although sometimes lenders have their own forms to complete.
This is just to confirm that they have no interest in the property and will not be making arrangements for or demanding the money to be repaid in the future.
Some lenders will allow you to use gifted funds to cover 100% of the deposit, and gifted deposits can also be used in conjunction with the borrower’s own savings or a scheme like Help to Buy.
Whether you have a £5,000 or a £100k deposit for a mortgage, the advisors we work with can help you with the right advice for how to get the deal of your choice and save money on interest rates.
It’s important you find the right balance between getting a mortgage as soon as you have a sufficient deposit saved, or saving more for a top interest rate deal.
The mortgage brokers we work with have successfully helped hundreds of people secure their ideal mortgage. Whether you’re a first-time buyer, are looking to remortgage, are looking to move house, have no deposit, or bad credit history, or just want some no-nonsense advice, get in touch.
Give us a call on 0808 189 2301 or make an enquiry – we’ll do the work of connecting you to the right broker for your situation.
All of the brokers we work with are whole-of-market with access to lenders across the whole UK. The service we offer is free and there’s absolutely no obligation or marks on your credit report.
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About the author
Pete, an expert in all things mortgages, cut his teeth right in the middle of the credit crunch. With plenty of people needing help and few mortgage providers lending, Pete found great success in going the extra mile to find mortgages for people whom many others considered lost causes. The experience he gained, coupled with his love of helping people reach their goals, led him to establish Online Mortgage Advisor, with one clear vision – to help as many customers as possible get the right advice, regardless of need or background.
Pete’s presence in the industry as the ‘go-to’ for specialist finance continues to grow, and he is regularly cited in and writes for both local and national press, as well as trade publications, with a regular column in Mortgage Introducer and being the exclusive mortgage expert for LOVEMoney. Pete also writes for OMA of course!
Mortgage Advisor, MD
*Based on our research, the content contained in this article is accurate as of the most recent time of writing. Lender criteria and policies change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information. The information on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us are fully qualified to provide mortgage advice and work only for firms who are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs.
Some types of buy to let mortgages are not regulated by the FCA. Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.
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