Deposit advice for first time buyers

Deposit Advice for First Time Buyers

Five percent? Ten percent? More? How much can you save towards a deposit on your first home, and how much do you realistically need to save for a deposit? How do mortgage deposits work and what is a first time buyer mortgage? Is there such a thing as a no deposit mortgage and how does the UK mortgage deposit process work? And can you get help with a mortgage deposit? If you’re busy delving deep into the ins and outs of the  first time buyer deposit, this article reveals everything you need to know to proceed with confidence. Here are the UK’s mortgage deposit rules, made simple.

What is a Mortgage Deposit?

First let’s look at what, exactly, a mortgage deposit is, and the mortgage deposit required. What is a mortgage deposit? A mortgage deposit is a lump sum you pay up front. It pays for part of the property, which you own outright. You repay the rest of the property price using a mortgage, which is simply a loan designed for home buyers that you repay every month.

How do mortgage deposits work? The amount of deposit you need is calculated as a percentage of the value of the property you buy. Your mortgage is based on what’s left, the money you need to borrow. In the past buyers – even first timers – could easily get 100% mortgages. These days the biggest mortgage tends to be 95%, leaving you needing to save up a deposit totalling 5% of the cost of the home you’re buying.

The bigger your deposit, the more of the property you’ll own up front, and the smaller your loan and repayments will be. It’s a great way to protect your finances in a world where interest rate hikes can easily make a perfectly manageable mortgage impossible to pay back. It’s also good to know that there’s a bunch of government schemes designed to support first time buyers with 91% to 95% mortgages. More about that later.

Deposit Needed for a First Time Buyer Mortgage

How much is a first time buyer deposit? Here’s an example of the calculation lenders make:

  •         The property you want to buy is on sale for £250K
  •         You’ve secured an agreement for a first time buyer mortgage loan of 95%
  •       A 5% deposit comes to £12,500
  •         A 10% deposit comes to £25,000


As we’ve mentioned, the higher the mortgage deposit the lower the amount you need to borrow to buy your home, the lower the interest, and the smaller your monthly repayments. And as you can see the amount of money you need to save depends on the price of the property, and the amount of the mortgage loan. If a lender is happy to loan you 90% of the value of the place you want to buy, you’ll have to save up a 10% deposit.

How Much Can First Time Buyers Afford?

How much first time buyer deposit do you need? It’s really important to pin down what you can afford to pay for a home in real-world terms. Ask yourself this question: how much can I afford to pay for my first home? Of course it depends on your mortgage lender and the deposit you can put down. Most lenders insist on at least a 5% deposit.

The amount you can borrow is influenced by the amount you earn your income. It also depends on the state of your credit rating – if it’s poor, you’ll find it harder to find a willing lender. And your own financial commitments matter as well. The age of the property you want to buy, it’s condition, its location, and the materials it’s built from also influence mortgage offers. A lender will probably be less willing to lend a large amount on an old wooden building situated next to a firework factory than it will be to lend money to spend on a terraced brick and tile house on an ordinary street.  

Mortgage calculators are your best friend, a simple way to know how much you can borrow in a few clicks.  All the UK’s major lenders offer calculators, a reliable and fast way to enter your details and get useful financial guidance. But a mortgage calculator doesn’t take into account all the details. You should always carefully consider your income and outgoings to figure out what you can realistically, comfortably afford whatever happens to the mortgage interest rates. These calculating tools let you change the mortgage period – the length of time the loan lasts before it’s paid off – but they usually default to the standard 25 years.

Schemes to Help First Time Buyers

If the idea of saving 5% as a deposit makes your hair stand on end, there’s help via a choice of first time buyer deposit schemes. The Mortgage Guarantee Scheme helps increase the supply of mortgages for borrowers with only a 5% deposit, great for giving first time buyers help with deposit payments. The government’s first time buyer help to buy scheme is called the Help to Buy Equity Loan Scheme. It lends first time buyers a percentage of the purchase price of a new build home. The Shared Ownership scheme, another government support initiative to help people get on the property ladder, works as a part buy, part rent scheme letting people to buy a share of between 10-75% of a new build home and pay rent on the rest. The First Homes initiative supports first time buyers and key workers with 30% discount prices on homes, and the Right to Buy scheme supports council house tenants in buying their own homes.

Good luck saving your deposit

Now you know all about first time buyer deposits, what they are, how they work, and the schemes designed to help you climb on board the property ladder for the first time. You know the amount of first time buyer deposit required, the ideal mortgage deposit percentage. You could also read our popular guide to how to buy a house for first time buyers. Our mortgage deposit advice helps people from every walk of life, age, and situation fund their dream home.