Lenders have minimum amounts you will need as a deposit to be approved for a mortgage. This is usually 5% of the property value, although the minimum is 10% with some lenders. Lenders use the ratio of deposit to property value to assign interest rates. The greater the deposit you can put down, the smaller the interest rate on the loan.
This is what is referred to as the loan-to-value (LTV) ratio. The lower this ratio is, the more money you have invested in your house as a deposit. As you continue to pay off your mortgage, assuming your property doesn’t lose value, this ratio will continue to go down. The more you pay off, the greater equity you will have in the property. This is the value of the property which you own outright.
Find out what you could borrow based on your savings
If you’d like a brief idea of what you could borrow, head over to our Mortgage Calculator for a quick mortgage rundown. This takes into account your income and deposit size, and will give you an estimated borrowing amount, as well as your Loan to Value (LTV) ratio. For a more detailed idea of how much you could borrow, sign up, create an account, and fill in some personal details. This shouldn’t take more than ten minutes, and allows us to give you free, personalised mortgage advice. Using these details, your mortgage expert can advise you on your best options, and answer any questions you might have.
In some cases, you may be required to put down a deposit greater than 10% to be approved for a certain mortgage. High-value mortgages, often £1 million plus, may have a maximum LTV ratio of 60 – 70%. This means you’ll need a 30-40% mortgage, which is a considerable amount of cash. Lenders do this because the greater the deposit you put down on the property, the more secure the mortgage is as an investment. As the value of the mortgage increases, the risk to the lender also increases, so they will need greater security.
Other costs to consider in addition to your deposit
The deposit you’ll need for a mortgage isn’t the only upfront cost associated with buying property. You will have to pay stamp duty and lender fees, which can either come out of your deposit, other savings, or be bundled into your mortgage. Stamp duty is a form of tax you pay when you buy property or land. You can read more about stamp duty here. Lenders will usually charge fees for arranging the loan and administrative costs, and these can range anywhere between £500 – £2,000.
What to do with your deposit
During your mortgage application journey, you will be asked for a bank statement as proof of your deposit. All applicants will have to submit bank statements from their personal current accounts. However, lenders will need proof that you actually have the deposit you intend on using for the purchase of your home. We advise making sure the balance of this account is equal to the deposit you intend on using before you begin your mortgage application.