How much deposit do you need for a mortgage?

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How much deposit do you need to buy your first home? Read our new blog written by our Mortgage Advisor, Stephen Kerrigan to see how much deposit First-Time Buyers in Doncaster are paying

So, how much do you need?

In the current market you’ll usually need a deposit of at least 5% of a property’s value to get a mortgage. A mortgage lender would then lend you the remaining 95% of the property’s value. If you wanted to buy a £150,000 property, you would need to save up at least £7,500 and borrow £142,500. 

However, many First-Time buyers in Doncaster put down more than 5%, for reasons we'll provide a video below from Josh Saunders, a recent First-Time Buyer who came to Mortgages Remortgages – Mortgage Broker to seek advice. According to research from Halifax, the average deposit put down by those buying their first home in the first half of 2018 was 16%. 

How much deposit will you need in cash terms?

To see how much, you’ll need to save for your mortgage deposit in cash terms, there are two things you should consider:

Typical property prices in your area

You can get a rough idea of this from property websites such as Rightmove or Zoopla, but speak to your local Advisor, such as Mortgages Remortgages – Mortgage Broker to get the most accurate information.

How much can you afford in repayments each month? 

Start by assuming you would borrow 95% of the property's value. If you can't afford the repayments for a loan of that size, you will need to save a bigger deposit or investigate schemes such as Help to Buy. 

Keep in mind, a Deposit isn’t the only thing you’ll need to save money for. You will need to find out the prices of the Properties in your area. Have a look at this other blog: Buying a Property in Doncaster

Reasons to save a bigger mortgage deposit

While 5% is the minimum you'll need, there are plenty of reasons to save more if you can.

Cheaper monthly repayments – it might sound obvious, but the bigger your mortgage deposit, the smaller your loan will be. The smaller your loan is, the cheaper your monthly repayments will be.

Better mortgage deals – a larger deposit will also make you less risky for mortgage lenders and, as a result, they'll generally offer you lower interest rates. For instance, when we checked in November 2018, the average rate on a two-year 95% mortgage was 3.6%, whereas for 90% mortgages it was 2.79% - a difference of 0.81%. That said, there are an increasing number of 95% mortgages launching at the moment and the gap between the two may be beginning to close.

Improved chance of being accepted – all lenders conduct affordability checks to work out whether you can afford the mortgage repayments, based on your income and outgoings. If you only put down a small deposit it’s more likely you will fail these checks because you'll need to spend more on your mortgage each month. What's more, lenders only tend to offer a loan of three times your annual salary for a mortgage, so if your salary is relatively low and you can't borrow enough, you may need a larger deposit just to make up the value of the property.

If you own more of your home outright you are less likely to fall into ‘negative equity’, where you owe more on your mortgage than your property is worth. Being in negative equity can make moving house or switching mortgage very difficult.

How much deposit are first-time buyers in your area putting down?

People buying properties in Bessacarr and Bawtry are paying higher deposits than most other people living Doncaster, South Yorkshire with those buying a property in Cantley paying nearly £175,000 for a 28% deposit. This is partly because housing prices are generally higher in these areas, and therefore even a 5% deposit can require a savings pot of around £20,000. In areas where smaller deposits are paid, such as Balby and Rossington a deposit of £19,575 would cover 16% of the average property price.

Read our blog: Remortgage Advice

Exchange deposits

When you come to the point of exchanging contracts on a property, you'll usually pay a deposit to show you're serious about going through with the purchase. The standard amount for an exchange deposit is 10% of the property value - but if you're planning on buying with a 5% deposit, for instance, that can usually be negotiated by your conveyancer. Let them know as early in the buying process as possible so they can warn the seller's conveyancer about it.

The exchange deposit has been a sticking point with some people who've wanted to use the bonus earned on their Help to Buy Isa at this stage of buying their first home. As the bonus is only paid on completion, you can't use it as an exchange deposit, and will therefore need to have money from an alternative source. If this is going to be difficult for you, your conveyancer may be able to negotiate a further reduction to the exchange deposit.

If you're struggling to save, Mortgages Remortgages is here to help.

Help is at hand if you're struggling to save up a big enough deposit for your first home. Why not investigate the following options?

Help to Buy equity loan - you put in a deposit of 5%, the government lends you up to 20% in England and Wales (or 40% in London, 15% in Scotland), and you get a mortgage to cover the rest. Shared ownership - you buy a share of the property (25%-75%) and pay rent on the rest

Get help from your parents or family members - they don't necessarily need to gift you cash towards your deposit, there are other options. Read more in our Recent Blog: Gifted Mortgages

Help to Buy Isa - a savings account offering a 25% bonus from the government when you buy your first home

Lifetime Isa - another account offering a 25% government bonus, although with this one you need to be aged under 40 and can't access your savings or the bonus until you've had the account for at least a year

100% mortgages

A 100% mortgage is a mortgage for the full cost of the house, meaning you don't need to put in any deposit at all.

Currently, the only kind of 100% mortgage you can get is a guarantor mortgage, where a family member takes on some of the risk of your loan by offering up their home or savings as security in the event that you don't make your mortgage repayments.

There are very few 100% mortgages on the market, and they carry a significant risk of negative equity - when you owe more on your mortgage than your property is worth - so you and your family should take professional advice before applying.

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