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How much deposit do I need for a mortgage?

24.08.2021

By Beehive Money

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What is a mortgage deposit? 

A mortgage deposit is a lump sum of money you’ll need to pay to secure a property that you want to buy. Your deposit will be a percentage of what the house is worth, and the lender will loan you the rest to buy the property. This is where you’ll hear people say, ‘a 10% deposit’. For example, a 10% mortgage deposit on a house worth £200,000 is £20,000. Your mortgage will then be £180,000 as a loan.  
 

How much deposit do you need for a mortgage? 

How much deposit you need for a mortgage varies depending on lots of different things such as the amount you want to borrow, your income, the price of the property you’d like to buy and what shape your credit report is in. Typically, first-time buyer mortgages are available with a 5-10% deposit.  
 
Generally, having a bigger mortgage deposit opens the door to three things. 
  1. More mortgage deals available to you which therefore means… 
  2. Better rates are available to you, and this means…. 
  3. Your monthly repayments are lower  
Mortgage advisers can recommend the best choice for you and can take away the stress of picking the right mortgage as they search different products and lenders before recommending their pick of mortgages for your individual needs. To help you further they'll also do the legwork of filling in your application, arranging valuations, checking offers and assisting you all the way until your mortgage has been completed. 
 

When do you pay your mortgage deposit? 

You pay your mortgage deposit as part of the home buying process to your solicitor or conveyancer. This’ll usually be near the end of your process when you’re nearly done with the legalities. Your conveyancer will issue you a document called a completion statement which will include all the fees for their work, any searches and surveys you’ve had, and it will include the fees for your mortgage product if there are any as well as your deposit. This is usually the step before exchanging contracts and usually happens two to four weeks before exchange of contracts. It can sometimes be more or less time than this. 

Although you don’t pay your mortgage deposit until quite far down the home buying process you will have to prove that you have the money for the deposit at the beginning of the process. This is called providing proof of funds.  

 

Do you get the deposit back on a mortgage? 

Kind of. It’s not like a security deposit which you would eventually get back; instead, your deposit goes towards the portion of the property that you actually own, and so do your monthly mortgage payments, minus the interest.  

The more of your property you pay off, the more options you have down the line to remortgage your house and withdraw some of the equity (how much you’ve paid off) that you have built up in the house - for maybe a new kitchen or extension.  

 

How does your deposit affect your mortgage? 

Your deposit affects how much you’ll be borrowing on your mortgage from the lender. The more deposit you have, the less you will have to borrow and therefore your monthly repayments will be less. If you do have a larger deposit, as we explained above, you’ll have access to more mortgage deals and more lenders will be willing to lend to you as you are seen as a ‘safer’ investment. It pays to save! Check out our how to save a deposit guide if you’re in need of a little guidance.  
 

Do you need a full deposit before applying for a mortgage? 

It’s a good idea to have your full deposit that you’re hoping to put down on a property before you apply for a mortgage as your mortgage adviser can clearly see what deals you may be able to get.  
 

Can you get a mortgage without a deposit? 

Generally, you’ll need a deposit and the best mortgage deals can require more than 10%. If you can’t afford to put the full deposit down, there are other options to house ownership.  
 

Can you use the equity in your house as a deposit? 

Yes, you can use the equity in your house as a deposit for your next property. The difference between what you bought your house for and what you sold it for is known as equity. If you sell your house for more than you bought it for then this equity can be used as a deposit for your next home. Read the following example to see it in action.  

If someone buys Property 1 for £105,000 with a 10% deposit of £10,500. Some years later they come to sell the house for £125,000 and have £90,000 left on their mortgage to pay back to their lender.  

They have £35,000 equity which is technically ‘theirs’. They want to buy Property 2 which is worth £200,000 at the same time as selling Property 1. They decide to put down a 20% deposit on Property 2 which is £40,000 and adds in £5,000 of their own savings to make up the full deposit with their £35,000 equity.  
 

How do you know what mortgages are available? 

Mortgage advisers or advisers have access to a wide range of mortgages from different lenders. They can look at your personal circumstances and give you recommendations on how much you can borrow based on your deposit and what your monthly repayments may be.

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