How To Check What Amount Of Deposit You Need For A Mortgage
Mortgage products are being pulled, and payments for mortgages are doubling. Lenders are backing out of previously agreed-upon deals because of concerns. Uncertainty amongst Brits trying to buy a home has skyrocketed throughout the last month thanks to a hike in interest rates. That interest rate hike, though, isn’t the only reason people are feeling concerned about buying a house these days. It also has to do with the biggest question on many potential homebuyers’ minds: how much deposit do I need for a house? A house mortgage is made up of many parts. The deposit on a house is just part of the equation. You must also consider stamp duty, the interest rates, and the number of payments themselves, which all tie into what you need to save for a home.
How Much Do You Need for a House Deposit?
If you are considering buying your first home, it is important to come to understand how a deposit works. In most cases, you can only borrow up to 95% of the home. This means that many buyers have 5% deposit mortgages. With as little as a 5% deposit of the property’s purchase price, it is possible to get yourself onto the property ladder- while the mortgage loan will cover the remaining 95%.
Not sure how that works? Understanding what is the deposit amount on a property that costs £200,000 might help put things into perspective. A 5% mortgage deposit on this kind of home would be £10,000. A 10% deposit mortgage loan would require £20,000. A 15% deposit to buy a house at this price would mean you pay £30,000.
Putting this into further perspective, on average, homes in Bath skyrocketed to more than £500,000 this year. In London, those numbers went to more than £600,000. In Scotland, you could expect to pay £200,000; in Ireland, costs went to £300,000. Even a rundown property with land for sale on the Isle of Wight could cost you as much as £200,000. When looking at homes in these price ranges, a house loan deposit needs to be much higher than it did just a few years ago. Fortunately, the prices have come down as interest rates have been on the rise. Still, it is worth considering how the house price can greatly impact the amount you need to save:
How do you determine what you have to save, exactly?
Looking around is the best way to decide what you need to save. Use property portals like Rightmove or Zoopla, or talk to estate agents.
Don’t Forget to Factor In Other Costs
Understanding the answer to the question “How much deposit do I need to buy a home?” is only one part of the home buying equation. While a house deposit is expensive, there are things outside the deposit for a home that you’ll be expected to pay when you buy a house.
The Stamp Duty Land Tax (SDLT) is usually paid on part of the overall price of the property when you buy a home or a flat. This is an expense outside the average UK house deposit for which you must plan.
You’ll find that you only pay this tax on properties that cost more than £250,000. The amount you end up paying depends on when you bought the home or flat, how much it cost, and whether you meet the exemptions required for relief. Wondering what you’ll end up owing? Typically if you buy a home that is between £250,001 to £925,000, you can expect to pay 5%. If you buy a home that costs between £925,001 to £1.5 million, expect to pay 10%. Anything above £1.5 million will usually cost 12%.
In addition to SDLT and the deposit for a house, you can also expect to pay your solicitor nearly £2000 in most cases. He or she will help transfer the title from the current owners to your name.
There are other costs, too. If you obtain a mortgage, the required costs to close on that loan could exist outside the deposit for a house. Most lenders will require you to pay a booking fee, an arrangement fee, and an electronic transfer fee in addition to a mortgage deposit in the UK. These fees could be as much as £3,500.
Understanding Repayment Amounts
While many people focus on questions like “How much deposit do I need to buy a house?” the reality is that the deposit for a home should only be part of the equation. A better question would be “What house can I afford in the UK?” Payment amounts depend partly on the deposit for a mortgage. They also depend on quite a bit on the overall price of the home and the interest rate of your loan. Mortgage rates continually change. The answer to a question like “How much is a 150k mortgage UK buyers obtain?” then is pretty variable. If you got a mortgage with a 5% deposit for a 25-year loan at a 3% interest rate, you’d likely pay £1,185 on a £150,000 home. That, of course, is before buildings and contents insurance, taxes, and other costs you must consider in a mortgage.
To find out how much a mortgage repayment might cost, there are online mortgage repayment calculators that can help. If the cost of a low-deposit mortgage is too expensive, you might need to look into additional mortgage options.
Why You Should Increase Your Deposit for a Mortgage
While you could make the minimum deposit for a house – which is typically 5% – there are many reasons to consider saving above and beyond that threshold and getting something better than a first-time buyer’s 5% deposit loan.
It might sound obvious, but the bigger house deposit UK buyers make, the less they have to borrow, which means cheaper monthly payments. Moreover, the bigger your deposit, the less of a risk you are to lenders, which could mean lower rates on your loan.
If you can only afford to put down the minimum deposit for a house in the UK, you’re not as likely to get approved for your loan. You can easily calculate the percentage saved online, showing you just how much more you should try to put away for a deposit on a home.
When you have a larger buying budget available, you’ll find lenders are willing to offer you more money overall. The more money you make, the higher your loan amount. So, if you don’t make as much as you’d like to, you can offer more than the minimum deposit for a mortgage and still get approved.
You’re also likely to get the mortgage you want with a higher deposit because lenders think you won’t end up with negative equity on your home. You own more of it initially, so if home values fall, you won’t go upside down in your mortgage.
The Difference Between Mortgage Deposits and Exchange Deposits
Many people ask “How much are house deposits” and in most cases, they want to know the answer to “How much for the deposit on a house mortgage?” That’s not always the case, though. Mortgage deposits are probably what you’re thinking of when you think about the deposit on a loan. It’s the money that goes into the total price of your home, and the more you put down, the better your loan deal. The ratio you will have. This will help you to receive a better mortgage house loan deal.
It’s not the only deposit you’ll pay, though.
You also need to think about the exchange deposit. If you ask your estate agent “How much deposit for a house?” they’re going to think you’re asking about something very different. They’re going to think you’re asking about the funds your solicitor will send the sellers when you exchange contracts. If you back out after that, you could lose money. The average house deposit UK buyers pay is usually about 10% of the cost of the home. You might be able to put less down, but it’s not very likely.
The question then lies, “How much do I need for a house deposit and a mortgage deposit?”
There are also some other reasons, such as rules that are formulated by the Help to Buy ISAs.
What would you do if the exchange deposit you have saved up is not enough to cover all of the required askings?
There are a couple of things you can do. The first would be to attempt to negotiate a lower exchange deposit. You can simply ask the seller’s agent “What deposit do you need for a house sale to be successful?” If the difference is small, then this might be possible and the seller might be willing to do it. If the difference is not so small, the next option would be to find some extra cash in a savings account or a loan that can help to cover the rest. Just keep in mind that the lower the exchange deposit is, the higher the risk is for the seller. Typically, a 10% deposit is enough protection for the seller to ensure that the buyer will not back out of the sale of the home.
What if you can’t save enough for the deposit?
There is help available if you are struggling to come up with a large enough deposit for your first home. For first-home buyers, there is a government scheme that will offer discounts of up to 30%. If you are interested in shared ownership, you can buy a share of the property while you are paying rent on the rest. You can also buy a house with some friends! This option is not without its risks, but it can definitely work well for some people- or even ask for help from parents or other family members. They will not necessarily have to give you cash towards your deposit- they can choose to use their savings or own property as collateral against your mortgage loan.
You can also look into getting a Lifetime ISA. You get a 25% bonus for opening this, and while you have to be less than 40 and you can’t get any bonus until you’ve had the account for a year, it’s a great way to save. It’s primarily a program to help cover a first-time buyer deposit.
Can you get a mortgage without a deposit?
When choosing a 100% mortgage, it is important to remember that it does cover the full cost of the house- and you will not need a deposit. As of now, the only kind of mortgage that will cover this is called a guarantor mortgage. This means that you have a family member take on some of the responsibility for your loan by offering their own home or their savings as a security net- in case of an unforeseen circumstance that you cannot fulfil your mortgage repayments. This option is rarely an easy one, as it can carry a large amount of risk with negative equity whenever you owe more on your mortgage than your property is worth. You and your family should consider reaching out to professionals before you apply for this type of loan. If deciding to go through with this option, remember that you generally will still need to have money available for an exchange deposit.
If you’re left asking yourself “How much for a house deposit is required?” the single best thing you can do is talk to a mortgage broker or a lender. If you ask “How much do you need for a mortgage?” they’ll talk through your possible options with you and help you learn more about how much to save.
FAQs
What is a deposit?
There are two kinds of deposits in the world of home buying. A deposit for a house loan is the deposit you pay your mortgage company to get the loan itself. If you’re asking “how much is a deposit for a house,” though, you could be talking about the exchange deposit, this is the amount you pay the seller when you exchange contracts. Don’t worry, though, you don’t have to save for two different deposits. Instead, one can be part of the other. Just ask your solicitor and your lender how to make it work to best fit your needs.
How much deposit do you need for a house abroad?
Wondering about the average deposit for a house in the UK vs how much deposit for a mortgage is required abroad? It varies from country to country. In South Africa, for example, you’ll pay almost half of the loan upfront. In the U.S., though, you’ll pay just 25% of the loan upfront. If you’re shopping aboard, it’s best to contact a lender in that country and ask “How much deposit for mortgage loans is required in your country” before you start bidding on houses there.
How much mortgage deposit do I need for a house I’m planning to rent?
Exactly how much is a house deposit for homes that you’re not planning to live in? How much deposit for a mortgage on a home you do not intend to live in varies from lender to lender, but in general, this amount will be quite a bit more. Most mortgages to landlords tend to require a deposit of 20% or more. If that seems like a bit more than you’d like to pay, you can always talk to your lender or a mortgage broker. Ask “How much is a deposit on a house UK landlords would own,” and they should be able to give you exactly how much you may need to pay for this type of loan.
What is the average mortgage deposit UK buyers pay?
The average mortgage deposit is about 10%. Keep in mind that the average house deposit can vary quite a bit, though. After all, the answer to “How much is a house deposit in London” will be different from the answer to “How much is a deposit for a house in a UK small village.”
Can you get a loan for a house deposit?
While many people ask “How much are house deposits?” many more people ask whether they can get a loan without a deposit. The answer in most cases is no. If you’re concerned about the answer to “how much is a mortgage deposit,” you can ask a lender what percentage of a deposit for a mortgage they require. In some cases, they may be able to work with you to get that percentage down, which, in turn, gives you a much lower answer to the question of “how much of a deposit for a mortgage do I need.”
When do you pay the deposit for a house in the UK?
The question “How much deposit do you need for a mortgage” is often coupled with the question “when do you pay a deposit on a house”? Typically, you can expect to pay your deposit about two to three weeks before you buy the home.
