IMB Blog

The Deposit Requirement For First-Time Buyer Mortgage In The UK

If you are a first-time property buyer in the UK, lenders would require a reasonable deposit from your end. The minimum deposit for a house is usually 5%-10% of the property’s value, but having a 15% deposit or more could help you secure the best mortgage rates.

Since the Covid-19 pandemic, most lenders started asking for at least a 10% deposit, probably because they are worried about the economic uncertainty causing house prices to fall. First-time buyers should plan their deposits to avoid complications.

On a positive note, the 5% deposit government scheme has helped the first-time buyers as high-street lenders have introduced 5% deposit mortgage deals. However, if you are planning to buy a property above 500,000 GBP, still the minimum deposit requirements with most lenders would be 15%.  

What is the benefit of a higher deposit?

It is always better to have a large deposit as it reduced your cost of finance. There are various advantages of contributing a higher deposit. Saving for a bigger mortgage deposit makes you a safer investment for a mortgage lender. This is because, even if house prices fall by 10%, the lender should be able to recoup its money from the sale of the property. With a bigger house deposit, you will therefore be offered lower mortgage interest rates.

The ratio between the deposit and the mortgage is known as the loan to value (LTV) ratio. For example, if you have a 10% deposit, you will need 90% from the lender, or a 90% LTV mortgage. The magic formula in the mortgage industry is “The higher the LTV, the higher the interest rate.”

How to start saving for my first home purchase?

Saving for a deposit can feel like a daunting task. But there are lots of tips and tricks that you can use to reduce how long it takes to buy a house in the UK. Assess the housing market to find out what affordable property prices are like near you and you should be able to answer your earlier question of: ‘How much deposit do I need for a house?’ Work out what you would need, deduct your savings – and you are left with the sum you will have to find from other sources.

Planning your monthly budget

Trimming household expenses is a great way to free up extra cash. To work out how much you could potentially save, study your incomings and outgoings closely. Banking and budgeting apps make doing this a lot easier. When you can see where each pound is currently going, you can figure out the best way to manage your money by setting up a budget.

Reduce the expenditure on basic essentials

What you spend is personal to you. Only you know what you are prepared to go without to save for a deposit for a house. You can try different things such as cancel the gym and run outside/use YouTube for free exercise classes? Bring your own lunch to work? Buy second hand, not new? Buy supermarket own brand groceries?

Manage existing credit commitments

Avoid wasting money by paying high interest on existing debts. Instead, shift your debt to a 0% balance transfer card or 0% money transfer card. A balance transfer will not get rid of your debt, but it will reduce the amount of interest you need to pay. So, you can pay your existing debt off quicker and start saving sooner.

Increase the monthly savings

Set up a direct debit to move your spare cash into a savings account as soon as you get paid. The aim is to earn as much interest as possible, so shop around for the best savings account for you. This may be a high-interest account linked to your current account, or a tax-free ISA (Individual Savings Account).

Can I get the deposit funds from my family and friends?

If you’re lucky enough to have friends or family with money to spare, they might be able to help you raise a mortgage deposit, or help you get a guarantor mortgage.  Not all lenders would be okay with such arrangements. A talented mortgage adviser would help you to find a suitable lender who is comfortable with gifted deposits. They usually ask for a letter from the third party confirming the amount and identity. Some lenders might check the audit trail of the funds where they have originated from.

Further, if you are sourcing your deposit in foreign currency, it would make things a little complicated. However, with the help of a mortgage adviser, it would be easy to arrange all required documents to submit a successful mortgage application. Some lenders might restrict funds originated from certain countries due to GDPR rules and regulations.

Do I need to account for other charges when saving a deposit?

First-time buyers can speak to Mortgage Advisers to get their insights on the deposit collection. They see the full picture and account for the total cost considering legal fees, mortgage deal fees, valuation fees, survey charges, and other related costs. It will give you a better idea of the total amount of funds you should have to buy your first property.

If you are only saving the whole cash amount to be used as a deposit in the house purchase, you might struggle to manage the above-mentioned other charges. It is better to have some spare cash to cover the other related expenses in the home buying process. In simple, you should not save only for the deposit amount, but also for the other related charges too!

For more info visit site:


More News

The 5 Benefits That You Get From The Independent Mortgage Brokers Company

The 5 Benefits That You Get From The Independent Mortgage Brokers...

When buying a house, getting a good mortgage deal could be difficult if you have bad credit. For this reason, you need to find…
What Do You Need To Know About The Mortgage Solutions In The UK?

What Do You Need To Know About The Mortgage Solutions In...

The world economy was already on a downward path, and then came the Russian invasion and the sections that the west had imposed, this…
Finding The Best Mortgage Broker When You Have A Bad Credit Score?

Finding The Best Mortgage Broker When You Have A Bad Credit...

When you have a low credit score, it can make finding a mortgage that fits your financial goals extremely challenging. Unfortunately, this is something…

Based on our research, the content contained in this article is accurate as of most recent time of writing. Lender criteria and policies change regularly so speak to one of our Independent Mortgage Brokers 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 advisers working for or with Independent Mortgage Brokers are fully qualified to provide mortgage advice and authorised and regulated by the Financial Conduct Authority. All our independent Mortgage Brokers will offer advice specific to you and your needs and circumstances. 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.

Fill in the details below and we will get in touch with you to discuss your requirements.