How much is a house deposit?
Deposit + mortgage = total property price
The mortgage options that will be available to you will hinge on the deposit you have saved. The bigger your deposit, the better your position will be. However, there are options available to get you on the housing ladder quicker if you don't have the deposit to match.
The minimum deposit for a house
There are some mortgages where you don’t need a deposit at all. These are usually called guarantor mortgages and since your deposit would be £0, your mortgage will cover 100 per cent of the property’s price. With a guarantor mortgage, a family member, close relative or guardian will be held legally responsible to cover the repayments on the mortgage if you can’t.
They might have to offer their own home or savings as security on the mortgage. This means that if you can’t keep up with the repayments, their home or money would cover the cost. Therefore guarantor mortgages do have risks, always make sure you—and your guarantor—understand the risks involved and what the repayments will be before getting one.
Five per cent deposit through Help to Buy
Your mortgage would cover the remaining 95 per cent of the property. Mortgages covering so much of the property purchase come with high-interest rates (meaning more money is added to how much you must pay back). You usually have to be earning a higher than average salary to prove to a bank that you will be able to pay the loan back.
However, a five per cent deposit is the minimum requirement for the Help to Buy scheme, which lets you borrow money from the Government to increase your deposit. This means the money you require to borrow from a mortgage lender will be lower and therefore have better interest rates. Help to Buy differs slightly depending on where you are in the UK and is only applicable to new-build homes.
If the property you’re looking at is being sold under Shared Ownership, a minimum of five per cent is needed for the share of the property you’re buying. So, if you were to buy a share of the property at £80,000, you would only need £4000.
Saving for a house deposit
Ten per cent is a good benchmark and the higher your deposit gets, the more mortgages you’ll be accepted for. The more you're able to put down upfront, the less you'll need to repay with interest. For example, if you have a 10 per cent deposit, your initial interest rate (an introductory rate usually for two years) could be around three per cent which increases to four per cent after two years.
If your deposit was 15 per cent of the property's price, the initial rate could be 1.5 per cent and go up to 3.8 per cent for the rest of the mortgage repayments. If you manage to save 20 per cent, you’ll have access to even more mortgages from different lenders, with even lower interest rates.
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