Securing a mortgage means meeting one fundamental requirement that affects everyone – the mortgage deposit.
With UK house prices remaining high and the cost of living squeezing household budgets, finding a substantial lump sum is a challenge faced by anyone looking to buy property.
If you’ve ever questioned why lenders insist on deposits or wondered about possible workarounds, you’re asking the right questions.
By understanding how deposits work, their impact on your borrowing options, and the alternatives available, you can make better decisions about your property purchase.
Whether you’re buying your first home or your next home, this article will explain why deposits matter, how they affect your mortgage terms, and what options exist if your savings fall short.
The Purpose of Mortgage Deposits
A mortgage deposit is the money you pay yourself when buying a property.
It’s your initial contribution towards the purchase price, with the mortgage loan covering the rest. If you’re buying a £400,000 house with a 10% deposit, you’ll pay £40,000 from your savings while borrowing the remaining £360,000.
Lenders express this relationship as the loan-to-value ratio (LTV).
An LTV of 90% means you’re borrowing 90% of the property’s value and contributing 10% as your deposit. The lower the LTV, the less you’re borrowing in proportion to what the property is worth.
But why won’t lenders just loan you the full amount?
The answer lies in risk management.
Your deposit creates a buffer that protects the lender if house prices fall. If you had to sell the property for less than you paid, the lender could still recover their money because your deposit absorbed the loss.
Without this buffer, lenders would face much higher risks.
Related: What’s the difference between a mortgage deposit and an exchange deposit?
How a Deposit Protects Both You and the Lender
From a lender’s perspective, your deposit shows commitment, it demonstrates you can save money and manage your finances responsibly.
This “skin in the game” means you’re less likely to walk away from the mortgage if times get tough.
For you as a borrower, a deposit provides protection too.
If house prices dip, a good deposit helps you avoid negative equity – where you owe more than your home is worth. This situation can make it impossible to move house or remortgage, leaving you stuck with your current deal.
The financial crisis of 2008 showed what can happen when deposits get too small. Many homeowners who bought with minimal deposits quickly found themselves in negative equity when house prices fell.
Lenders tightened their requirements afterwards to reduce risks for everyone involved.
Your deposit also affects what happens if you can’t keep up with mortgage payments.
With a larger deposit, the lender is more likely to recover their loan if they need to repossess and sell your property, and you’re more likely to get some money back after the debt is cleared.
How Your Deposit Size Changes Everything
The size of your deposit directly influences:
- the lenders you can choose from
- and the interest rate you’ll pay on your mortgage
Lenders offer their best rates to borrowers with larger deposits because they represent lower risk.
Most lenders structure their products around LTV bands – commonly 95%, 90%, 85%, 80%, 75%, and so on. Each time you cross into a lower LTV band, you’ll usually find better interest rates available.
Let’s look at how this affects real costs. On a £400,000 mortgage:
| Deposit Size | LTV | Interest Rate | Monthly Payment |
|---|---|---|---|
| 5% | 95% LTV | 5.5% | £2,160 |
| 10% | 90% LTV | 5.0% | £1,966 |
| 25% | 75% LTV | 4.2% | £1,712 |
Over a 25-year mortgage term, that difference between 5% and 25% deposits could save you over £130,000 in interest payments. This shows why it’s worth saving a bigger deposit if you can.
The term length also matters as a longer mortgage term reduces your monthly payments but increases the total interest you’ll pay.
Minimum Deposit Requirements
Most mainstream lenders ask for at least a 5% deposit for standard residential mortgages.
This minimum applies mainly to first-time buyers, and even then, you’ll need a solid credit history and good income to qualify.
For most buyers, a 10% deposit opens up significantly more options. Moving up to 15% or 20% will give you access to much better rates.
Certain properties will come with higher deposit requirements.
New-build flats often need at least 15-20%, while converted flats or properties above commercial premises might need 25% or more. Listed buildings, timber-framed homes, or anything with unusual construction might also require bigger deposits.
Why does the property type affect the deposit?
It’s all down to risk. If you are buying a non-standard construction house, then in the event of repossession, the lender will either have to spend more time selling it, or reduce the price for a quicker sale.
Your personal circumstances can also affect things.
Self-employed applicants or those with credit issues will generally need larger deposits to offset the additional risk lenders perceive.
In these cases, 15-25% deposits are often expected, though specialist lenders can consider less with the right supporting factors.
No Deposit, No Problem?
Before the 2008 financial crisis, 100% mortgages (and even 125% mortgages!!) were widely available.
These no-deposit options disappeared almost overnight when the market crashed, and lenders faced huge losses.
Up until recently, the main way that you could buy a home without a personal deposit was with the help of your family.
Gifted Deposit
If your family give you the cash for a mortgage deposit then this is classed as a ‘gifted deposit‘ by lenders.
Family Deposit
A family member allows the lender to use some of their savings as security instead of a deposit.
Family Equity
A family member allows the lender to use their own home equity as security instead of a deposit.
Read more
But now 100% mortgages are available again
Yes, true no-deposit, 100% mortgages are available from a few lenders, without needing to ask for family assistance.
You need to qualify for the mortgage by yourself, or with a partner, and the mortgage covers 100% of the cost of your new home.
The Pros and Cons of 100% Mortgages
The obvious benefit of a 100% mortgage is getting on the property ladder without saving up for a deposit. This means you could buy sooner and potentially benefit from house price growth rather than watching prices rise while you save.
However, the drawbacks are significant:
Higher interest rates mean your monthly payments will be larger than with even a small deposit. This affects affordability and the total cost of your mortgage. You might pay 0.5-1.5% more in interest compared to even a 5% deposit mortgage.
The risk of negative equity is much higher.
Even a small drop in house prices could leave you owing more than your home is worth, making it impossible to move or remortgage. A 5% dip in property values puts you immediately underwater.
Affordability assessments are tougher for 100 per cent mortgages. Lenders will scrutinise your income and outgoings much more carefully, and you’ll need an excellent credit history.
For most buyers, saving even a small deposit will provide more options, better rates, and lower risk than pursuing a 100% mortgage.
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How Your Situation Affects The Deposit
First-Time Buyers vs Home Movers
First-time buyers often benefit from more flexible deposit requirements. Government schemes and some lender policies are designed to help people get on the property ladder with deposits as low as 5%.
Home movers are in a different position.
If you already own a property, all or some of your deposit for your next home will come from the equity in your current property – the difference between its value and what you owe on your mortgage.
For example, if your current home is worth £400,000 and your outstanding mortgage is £200,000, you have £200,000 in equity.
After selling costs, this equity becomes your deposit for your next purchase.
Property Types
Different property types will trigger different LTV requirements from lenders:
New Build
New-build properties, especially flats, often require larger deposits. Lenders worry about the ‘new-build premium’ – where new properties lose some value once they’re no longer brand new. A 15-20% deposit is common for new-build flats, while houses might be considered with 10-15%.
Non-standard Construction
Properties with non-standard construction present a higher risk to lenders. This includes homes with thatched roofs, timber frames (pre-1970), concrete panels, steel frames, or unusual materials like cob or wattle and daub.
Lenders might ask for 20-25% deposits for these properties, and some won’t lend on them at all.
Flats Above
Flats above commercial premises like shops or restaurants face extra restrictions. Lenders worry about resale values, noise, and other issues. Expect to need at least 20-25% deposits for these, especially if the business below is a restaurant, takeaway, or pub.
Buy To Let
Buy-to-let properties nearly always require a 25% deposit, 75% loan to value. This reflects the higher risk lenders associate with investment properties, where rental income could be interrupted.
Acceptable Sources for Your House Deposit
Expect to be quizzed on where your deposit has come from.
Lenders are just as interested in where your deposit comes from as they are in its size.
Funds from personal savings are great (ideally built up over time and shown on bank statements), gifts from family members (with signed gift declarations confirming no repayment is expected), inheritance (backed by probate documents), equity from other properties, or proceeds from selling assets like shares or investments are all OK.
What won’t work are deposits from personal loans, credit cards or other borrowed money, as these increase your monthly outgoings and debt burden.
Lenders are also wary of cash deposits without clear origins, money from abroad without comprehensive documentation, suddenly acquired large sums, or funds from non-family members without good reason.
These raise red flags under anti-money laundering regulations and could delay or derail your application. If you’re unsure whether your deposit source will be acceptable, speak with a mortgage broker before applying.
Can I Use Crypto for a House Deposit?
While most banks won’t accept cryptocurrency directly, there are legitimate ways to turn your digital gains into a property deposit.
Family Support Beyond Cash Gifts
Family can help with your deposit beyond simply giving you money:
Joint Borrower Sole Proprietor (JBSP) mortgages allow family members to help with affordability by adding their income to yours, without being named on the property deeds.
This means their income helps you qualify for a larger loan, but they don’t own part of your home. They remain equally responsible for the mortgage payments, however.
Family offset mortgages let a family member put their savings into an account linked to your mortgage.
These savings don’t earn interest but instead reduce the amount of your mortgage that is charged interest. The family member gets their money back later, usually after a set period or when certain conditions are met.
Family deposit mortgages, as mentioned earlier, use a family member’s property or savings as security instead of a deposit. The family member doesn’t give you money directly but agrees their assets can be claimed if you default.
These options all involve family taking on some level of risk or commitment, so clear communication and professional advice are essential before proceeding.
How Mortgage Brokers Can Help
Brokers know which lenders have the most flexible deposit requirements for your specific situation.
While one bank might turn you down with a 10% deposit, a broker might know three others that are happy to lend to you. For example, a client with a 10% deposit for a flat above a shop might be declined by major banks, but a broker could find a specialist lender willing to consider the application.
For complex deposit situations – like gifts from overseas family or complex income structures – brokers know which lenders are most accommodating. They can guide you through the necessary documentation to smooth the process.
Mortgage brokers can advise on the trade-offs between deposit size, interest rates, and fees. Sometimes paying a slightly higher rate with a smaller deposit makes more sense than waiting years to save more.
They can also suggest strategies and creative options you might not have considered, like using equity from a family member’s property or looking at shared ownership.
Making It Happen
Whatever deposit you have or are saving towards, understanding how it affects your mortgage options puts you in a stronger position.
While larger deposits certainly open more doors and save you money over time, smaller deposits don’t need to keep you off the property ladder completely.
Why not talk to a mortgage broker to see what your options are?
Call us on 0330 030 5050 to get started.
Frequently Asked Questions
Most mainstream lenders require at least a 5% deposit for residential mortgages.
This means on a £400,000 property, you’d need £20,000 as a minimum deposit. However, for better mortgage rates and more lender options, a 10-15% deposit is needed.
True 100% mortgages are starting to become available again, where the lender gives you all of the purchase price. Alternatively, a ‘family assisted’ mortgage could help.
Read more: How to get a mortgage with no deposit
Lenders won’t accept deposits funded by loans because this increases your debt burden and monthly outgoings. This could affect your affordability assessment and is seen as a risk factor.
And it is effectively a 100% mortgage.
You’ll need bank statements showing the accumulation of funds (usually 3-6 months), payslips confirming income if saved from salary, a gift letter for gifted deposits, a grant of probate for inheritance, or sale documents for assets sold to raise the deposit.
Yes, gifted deposits from immediate family members are widely accepted by lenders. Your parents will need to provide a signed gift declaration confirming the money is a genuine gift with no expectation of repayment, and proof of where they got the funds.
Usually, yes. Equity from another property is a common and acceptable deposit source. You can release this equity through remortgaging or selling the other property. This is a common approach for home movers and property investors expanding their portfolios.
You don’t need the deposit money to apply for a mortgage, but you will need evidence that you have access to these funds. A 10% deposit is typically transferred to your solicitor a few days before exchange of contracts. Your solicitor will request the funds when needed, usually giving you 5-10 working days’ notice, so ensure you can access your deposit quickly when required.
