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How Much Deposit for a House?

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A question we get asked a lot: how much deposit do you need for a house? Truth is, this largely depends on property price. But, the larger your deposit, the better the mortgage deal you’re likely to get, with more manageable monthly repayments. Let’s break it down, and share some top saving tips to get you on the ladder. 

How much deposit do I need for a house?

Deposits are typically between 5-20% of a property price. This means a lender can loan you anywhere from a 95% loan-to-value (LTV), allowing you to get on the property ladder with a 5% deposit – 5% of the property’s price.

LTV measures the relationship between the loan amount and the property, and is how a lender assesses their risk. A rule of thumb tends to be that the higher the LTV, the higher the interest rates. 

A breakdown

As of July 2021, the average UK house price was £270,973, a 7% annual increase. So using this as a base, you’d need to save:

  1. 5% deposit = £13,549
  2. 10% deposit = £27,097
  3. 15% deposit = £40,646
  4. 20% deposit = £54,195

95% LTV mortgages 

95% LTV mortgages became hard to come by during the pandemic, with many lenders pulling them from the market. As a result, the government launched a 95% LTV scheme in April 2021, to help those with smaller deposits get on the ladder. It’s not for first-time buyers alone. 

However, while 5% is the minimum you’ll need to buy a house, it’s recommended you save more – if you can. This is because 95% LTV mortgages carry a greater risk for mortgage lenders, as a drop in house prices could potentially leave you in negative equity

As a result, lenders often price this into the mortgage offer, meaning high LTV mortgages tend to be more expensive, with greater interest rates. In short: the greater the risk to the mortgage lender, and the more money they lend you, the higher the interest rates.

So, it’s recommended to save a higher deposit, if you can. This would give you more deals to choose from, with lower monthly repayments.

How to calculate your deposit

When preparing to buy a house and deciding how much you need to save, consider two key things:

  1. What you can afford
  2. Property price

How much can you afford?

When deciding what mortgage you can afford, look at the bigger picture. Don’t just consider the monthly mortgage repayments themselves, but everything else you’ll be paying for, including:

  • Living expenses
  • Utility bills
  • Maintenance costs associated with owning a home

Use a mortgage affordability calculator as a rough guide for how much you can afford to pay. 

Affordability Calculator

Property price

The property price will determine how high a deposit you need to save. To get a feel for this, decide on an area and do thorough research. 

You’ll be able to get a rough idea for how much properties sell for in the area by checking out property portals or estate agent listings. 

You won’t be able to determine an exact figure, but you will be able to get a ballpark, which can give you something to aim for when saving. 

How to save for a deposit

Saving for a deposit can sound easier said than done, especially if you’re renting at the same time. Here are some top tips to help you get your foot on the ladder:

  • Set a monthly budget and aim to put a certain amount away each month 
  • Downsize your current rental property
  • Move back in with family
  • Move in with more people, say a larger group of friends (more people to split the rent with)
  • Rent in a suburb rather than a city
  • Cut back on non-essentials and certain luxuries (e.g. daily overpriced coffees). Every little helps!
  • Sublet (if your contract allows it)
  • Sell items you don’t need anymore
  • Maximise your current savings (there might be higher interest in an ISA, rather than a standard savings account)
  • Switch energy supplier
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How long does it take to save for a house deposit? 

This depends on your income, the rate you save at, the price of the property you’re looking to buy, location – and more. 

Example

Let’s take the average house price of £270,973. The average deposit first-time buyers save is 15%, which would be £40,646. 

The median household income of individuals as of the last financial year was £29,900. Saving at a rate of 20% (of their income) a year would see them put away £5,980. This works out to around £498 a month.

This means it would take someone 8 years to save for a house deposit – using these averages. 

Of course, this could be even longer if trying to buy in the capital, where house prices are the highest in the UK, sitting at an average of £495,000 in July 2021. 

What to do if you’re struggling to save

It’s rare for someone to buy a house alone, most do it with at least one other person, usually a partner. However, even with this, getting on the ladder can be tough. 

But, if you’re struggling to save for a house deposit, there is help out there. 

  • Government schemes, such as the Help to Buy Equity Loan
  • Bank of mum & dad 
  • Buying a house with multiple friends 
  • Shared ownership (not for everyone but has helped some people get on the ladder)
  • Lifetime ISA
    • You can put in up to £4,000 each year, and the government will add a 25% bonus to your savings
    • You must be over 18 and under 40 to open one

Why should you save a high deposit?

While saving can be tough, there are many reasons why saving as high a deposit as possible can be a good idea. This includes:

Lower interest rates

The higher a deposit you can save, the less risky you are for mortgage lenders. So, generally speaking, this will give you better mortgage deals with lower interest rates. Even 90% LTV mortgages are around 1% cheaper than 95% LTV mortgages.

Lower monthly repayments 

The bigger your deposit, the smaller your loan, and therefore the cheaper your mortgage repayments will likely be. 

Easier application process 

When applying for a mortgage, a lender runs a number of checks on you, including:

  • Income/proof of employment 
  • Ingoings & outgoings 
  • Credit score 

In short: you need to prove you can keep up with repayments. The more you need to spend on monthly mortgage repayments, the more likely you are to fail these checks. So, you can improve your chances of getting a mortgage with a higher deposit.

It’s always a good idea to check your credit score to see where you stand before lenders do. That way, you can take steps to improve it if necessary. Get started below – it’s free!

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Less risk 

It’s not just the lender who takes on less risk if you have a large deposit, but also you. You’re at less risk of ending up in negative equity, which is where your house is worth less than what you paid for it.

More choice

What do you need to get a mortgage? A lender will usually lend you up to 4x your salary. So, the higher the deposit you save, the bigger your budget will likely be. This will give you a greater choice of location, property type, and more. 

If your salary is low, you may need a bigger deposit to make up the value of the property, if you can’t borrow the money. 

Need a mortgage adviser?

Trying to get on the property ladder? Explore your options and find the best deal for you. We can connect you with an adviser to help you get a mortgage quote. Get started below.

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Last Updated: October 27th, 2021