How much deposit do you need for a house?

What’s the minimum deposit I actually need? 

Depending on the lender, the minimum deposit you'll need is 5% of the property's value.

For example, if you're buying a property worth £300,000, you'll need to pay £15,000 as a deposit.

To work out how much you need to save for a deposit, it may be a good idea to decide how much you can afford to borrow.

The more you put down, the cheaper your mortgage deal (in most cases!)

What is the average deposit for a first-time buyer? 

According to data released by Halifax in January 2023, the average deposit for a home came in at 21% in 2022. And although house prices are showing signs of falling, the amount you’ll need is still significant, although it varies depending on where you live.

Average deposits came in at £36.825 in Wales, 18% of the average house price. But were far higher in London at £125,378, around 24% of the average price in the capital.  

Nationally, the average cash amount in 2022 was £62,470, a rise of 8% compared with 2021. The good news is that over half of all loans on home were taken by first time buyers, the highest in the decade. 

Should I save for a bigger deposit?

With a first-time buyer mortgage, you’re likely to be looking for a 90% or 95% mortgage deal (meaning you’ll need a 5% or 10% deposit saved).

When it comes to borrowing money in any capacity, it all comes down to risk. The bigger deposit you put down, the lower the risk you are to the lender and the more deals you’re likely to be able to access from lenders. Putting down a bigger deposit increases your loan-to-value ratio, and reduces the cost of borrowing.

Pros

• The bigger the deposit you can save, the stronger position you should be in. This is because mortgage interest rates are lower at 90% LTV compared to 95%. 

• A bigger deposit also means a lower  mortgage interest rate, which in turn means lower monthly repayments. 

• You’ll be at a lower risk of  negative equity if you have a bigger cash deposit to put down. 

Cons:

• If house prices rise while you are saving up a bigger deposit, the amount you’ve saved is reduced as a percentage of the house value. 

• You could be paying rent while you wait to buy, which some see as wasting money. 

What about 0% deposit mortgages?

Few mortgage lenders offer 100% mortgages, which is when you borrow the full value of the property and have no cash deposit. However, these have become more common with the recent shift in interest rates. 

In most cases, a 100% mortgage is only available through guarantor mortgages.  

This means you’ll need a guarantor, usually a parent or guardian, who will be responsible for payment of the mortgage if you are unable to do so.    

You can also take out a family mortgage. Similar to a guarantor mortgage, this usually means a family member retains around 20% of the property’s value in a dedicated savings account, which they cannot touch for a set period. Usually this is for five years. 

 While a 100% mortgage means you don’t need to save for a deposit, it carries bigger risks. If house prices fall, you are at risk of negative equity.  

This is where your home or property is worth less than the amount you’ve borrowed. 

So if house prices were to fall and you borrowed 100% of your property’s value, you could end up in negative equity.   

How to raise a deposit

• Lifetime ISAs: With this savings scheme, the government will pay in £1 for every £4 you save. You can invest a maximum of £4,000 a year towards your first home.  

• Regular savings: Why not set up a direct debit into your savings account? Depositing a fixed amount of cash into a separate account each month means you’re less likely to touch it! The good news is that rising interest rates means you can earn money on your savings pot. 

• Saving/budgeting apps: There are a number of apps that save your spare cash, which can help you build up a deposit fund. Some of these use AI to save set amounts that won’t leave you broke, either. But bear in mind they don’t usually pay interest on the amount saved.  

• Assess your living situation: Is your rent too expensive for you to save for a mortgage? Some first-time buyers  move back in with their parents or go into a flat share while they’re saving for a deposit. 

For our full breakdown, keep reading our guide on how to raise a deposit.

Can I use a credit card to fund my house deposit?

Unfortunately, the answer is no. You won’t be able to use your credit card to fund your house deposit. This is because mortgage providers will want to receive funds from a non-repayable source.  

Other costs associated with a getting a mortgage

On top of your deposit and monthly repayments, there are other costs associated with a mortgage that you’ll need to factor in. These include:

Arrangement fee: A mortgage arrangement fee is what you pay for the mortgage product itself, which can cost anything up to £2,000. It’s likely that you’ll be given the option of adding this to your mortgage, which means you can avoid an upfront cost. However, it can increase your payments overall as you’ll pay interest on it. 

Valuation fee: This is where the mortgage provider assesses the value of the property you’re buying to ensure it’s worth the amount they’re going to lend you. Your valuation fee will depend on your property’s value and can cost between £100 and £1,000. 

Booking fee: This is the cost of applying for a mortgage. Some lenders combine booking and arrangement fees, while others charge them separately. For many lenders, this isn’t a refundable payment. So if you change your mind and decide not to go through with the mortgage, you won’t get your money back 

Mortgage account fee:  This is the administration cost of your mortgage for your lender and generally costs up to £300. 

CHAPS: A Clearing House Automated Payment System (CHAPS) covers the cost of your mortgage provider sending funds to your solicitor. This payment is often non-refundable and usually costs up to £50.