It’s possible to get a mortgage with a 5% deposit - based on the current UK average house price that works out at £12,500. 

Even though you can buy a home with a 5% deposit, when it comes to mortgage down payments - the bigger, the better

In this article, we explain how much deposit you need to buy a house, and why you should aim big if you can (there are also some tips in case you’re struggling to save!).

First, a word on the Mortgage Guarantee Scheme

If you tick the right boxes, you should be able to get a mortgage with a 5% deposit. But because of COVID-19, finding a 95% mortgage deal has become tougher.

Following the pandemic and people’s financial uncertainty, many lenders took their low-deposit mortgage deals off the table. Instead, they were asking for at least 10%. 

To help out, the government launched the Mortgage Guarantee Scheme in April 2021, putting 95% mortgages firmly back in the mix. Several high-profile lenders have signed on to the scheme, making it possible for first-time buyers to get a mortgage with a 5% deposit. 

You can read more about 95% mortgage deals here.

What is a mortgage deposit?

A mortgage deposit is the lump sum of money paid towards a property upfront. The rest of the property price is borrowed as a mortgage. 

A deposit is calculated as a percentage of the total cost of the property, usually starting at 5% and moving up in 5% chunks (10%, 15%, 20%, and so on). As the deposit increases, you get access to lower interest rate deals, which means lower monthly repayments. 

Heads up - If you’ve got something like a 13% deposit saved, you’ll probably be offered the same interest rate as someone with a 10% deposit. If you can, find that extra 2% to round it up to a 15% deposit because it’ll help unlock a better deal. 

Will I get my mortgage deposit back?  

When you hear “deposit,” you might think of something you get back after a certain amount of time (like a security deposit when you’re renting a flat or holiday home). A mortgage deposit is different. It won’t be refunded, it’s your share of the property. 

Then as you pay back the amount borrowed as a mortgage, you gradually own more of the property - this chunk is known as “equity”. If your home is worth £200k and your mortgage is £150k, your equity would be £50k.

You can eventually access this cash by either selling your home or remortgaging to release equity, assuming your property is worth the same (or more) as when you bought it. 

Can I get a mortgage without a deposit?  

You can, but it’s rare. It’s called a 100% mortgage, and to get one you’ll need a guarantor. This is usually a family member who’ll put up their home or savings as security in case you can’t make your mortgage repayments.

There aren’t many of these deals on the market, and they’re pretty risky, so it’s a good idea to speak to a mortgage specialist before applying for one. 

How much deposit will I need to buy a house in the UK? 

How much is a house deposit? According to the Office of National Statistics, the average UK house price in February 2021 was £250,000. Using this price as an example, here’s what you’d need to put down, based on different deposit sizes:

  • 5% deposit = £12,500
  • 10% deposit = £25,000
  • 15% deposit = £37,500
  • 20% deposit = £50,000

Of course, depending on house prices where you live, the deposit could be lower – or higher. 

To work out how much you’d need to save for a mortgage, take a look at the local house prices. Bookmark sites like Rightmove and Zoopla, and check to see how much nearby properties have sold for recently (ideally within the last three to six months).

Why does it make sense to save a bigger house deposit? 

Depending on the value of the home, saving even the minimum 5% can be tough work. It’s totally fine if you want to stop there and go after a 95% mortgage deal

But if you can, saving more is always a good idea. Here’s why: 

  • Access better (cheaper) mortgage deals: Going from a 5% to a 10% deposit can make all the difference to your mortgage for one key reason: the bigger your down payment, the less you need to borrow. The smaller your loan, the less interest there’ll be, which ultimately means lower monthly repayments. (Yes please!).

  • More budget to play with: Lenders will typically let you borrow four-and-a-half times your annual salary. So if you earn £25k a year, the maximum you’d get is £112,500. Saving a larger deposit could increase your budget.

  • Increased chance of getting a mortgage: All lenders carry out checks to make sure you can afford the monthly mortgage repayments. They’ll look at your income and expenses, and credit history. Putting down a larger deposit can help you pass these checks, as it can move you onto a lower loan-to-value (LTV) band, making the repayments more affordable based on your income.

    Note: LTV is the size of your mortgage compared to the property’s value. If you want to buy a house worth £150k and you have a 5% deposit, your LTV is 95%. If you have a 10% deposit, your LTV is 90%, and so on. The lower your LTV, the lower the interest rates (and the lower the monthly repayments).

  • Lower risk of negative equity: By putting down a larger deposit, you’ll own more of your home from the start – and this means you’re less likely to fall into “negative equity.” Negative equity is where you owe more on your mortgage than your property’s worth, and it can make selling up or remortgaging more difficult in the future. 

What if I’m struggling to save enough for a bigger deposit? 

Saving is tough. If you’re struggling to break through the 5% mark, there are a few options available: 

  • Use the Help-to-Buy scheme: If you’re buying a new-build house in England or Wales, the Help-to-Buy scheme lets you put in a 5% deposit, with the government lending you up to 20% (40% in London). You then get a mortgage for the remainder. Unfortunately, the scheme has now closed in Scotland.  

  • Open a Lifetime ISA: This is an individual savings account where the government adds a 25% bonus (up to £1,000) every year. After the first year, you can withdraw any money you’ve saved to buy your first home without having to pay any fees or penalties. Read more about the Lifetime ISA on GOV.UK.

  • Ask parents or family members for help: Not everyone is lucky enough to have family who can afford to gift them a deposit – but that’s not the only way they can help. Instead, they could act as guarantors for your mortgage, putting up property or savings as collateral. It’s a big ask, but it’s an option.

Thinking about buying a home in the UK and wondering what kind of place you can afford? Use our mortgage calculator to get an idea of what you could borrow and your budget.