How big a deposit do I need?
There is no standard amount that people need to have saved up before they can get a mortgage. But a basic principle to keep in mind is that the bigger the deposit you have, the cheaper the mortgage deals you will be able to get. This is because the more money you have to put towards a house, the less of a risk you pose to a lender.
But don’t despair if you’re struggling to save a large deposit there are still many mortgages out there for first time buyers. You can find typical first time buyer mortgage rates.
90%, 95% and 100% mortgages
In the not so recent past it was quite easy to get hold of a 95% or 100% loan to value ratio (LTV) mortgage – meaning that you’d only need to put down a 5% deposit, or no deposit at all. Nowadays, it is almost impossible to get a 100% mortgage and there are far fewer 95% deals around. Because of this, if you are looking to buy your first home you will usually need a deposit of at least 10% of the value of the property, which will allow you to get a 90% mortgage. So for a £200,000 house you would need to have £20,000 in savings.
Smaller deposits with NewBuy
The exception to this is the NewBuy scheme which was launched by the government in March 2012 to make it easier for people with smaller deposits to get on the housing ladder. Through NewBuy, buyers with a deposit of between 5% and 10% can purchase a newly built property worth up to £500,000 from a participating lender with a 95%-90% mortgage.
The initiative works by making these high LTV loans less risky for lenders as housing developers will contribute 3.5% of the purchase price of the property, and the government will guarantee 5.5%. But that all happens behind the scenes and to the buyer it is no different to any other mortgage.
NewBuy is worth looking into if you would struggle to save a large deposit and would like to live in a new build property, but these kind of mortgages are only available through a small number of lenders.
Deposits for the best mortgage deals
To get the most competitive mortgage deals on the market you will usually need a deposit of 25% upwards and some of the best deals require 30% or even 40% deposits.
For most first time buyers, getting a deposit together this big will be unrealistic so you may want to look into alternative ways of funding your home purchase. Things worth considering are shared ownership and shared equity schemes, buying a property with friends or getting first time buyer help from your parents or family offset mortgages.
Impartial mortgage advice
No matter how much you are able to save there will be options available to you but these will all depend on your individual circumstances. To discuss what choices are available to help you get on the housing ladder, you can speak to a Which? mortgage adviser by calling us on 0117 981 7787 – or request a call back. Our advisers look at every mortgage from every available lender, and because they’re paid a salary – not a sales commission – you can have confidence that you’ll receive truly impartial advice.