Deposits are one of the most important parts of buying houses and can strike a lot of fear and anxiety into home buyers. It’s also thought to be the most difficult part – putting the money together to secure a mortgage on a home. Of all the questions you may have surrounding the subject of deposits, though, the biggest is likely to be – how much deposit do you actually need?
That’s what we are going to discuss in this post.
Are 0% Deposit Mortgages Still A Thing?
It’s worthwhile looking at the fact that around 10 years ago, there were various mortgages available where you didn’t need a deposit. However, those are more or less a thing of the past. They still exist, but are rarer, and are mostly in the form of guarantor mortgages. These kinds of mortgages involve someone else, such as parents or grandparents to use savings or a property as the security in place of what would normally be the deposit.
Different lenders have different rules about the people who are able to and those who can’t become guarantors. Often, aunties and uncles and friends aren’t.
These kinds of mortgages are considered to be risky though, particularly for the guarantors involved. Basically, if you, the homeowner, can’t pay for the mortgage, the guarantors would be expected to pay it.
How Much Deposit is Required?
If you don’t fancy going the route of guarantor mortgages, it’s best to understand what deposit is required. This is calculated as a % of the property’s value. The mortgage is then worked out as being what’s left off and is the amount you need to borrow.
Some of the largest mortgages available can be as high as 95%, where the deposit is obviously 5%. To work out what you need to save up then, multiply the price of the house by 5%. According to the HM Land Registry, property in the UK cost an average of £228,000. So, the deposit you would need would be £11,400.
Generally, though, this will not give you the best mortgage deal.
What is the Recommended Deposit for a Mortgage, Though, for a Better Deal?
As mortgages are loans, they include interest. When you have a lower interest rate, therefore, you have an easier to manage mortgage. This means you will be able to keep the repayments under control and you will need to spend less on your home overall.
You only have access to the best mortgages, those with the lowest interest rates, if you can put down a big deposit. With this in mind, you need to increase the size of the deposit you put towards the home you are interested in by at least 5%. So, rather than sticking to 5% you need to look more to having a 10%, 15% or even 20% deposit. Anything above a deposit of 20% will open up the opportunity for the more attractive mortgages.