Mortgage Deposits
Understanding deposit requirements, sources, and maximising your savings
What is a Mortgage Deposit?
A mortgage deposit is the upfront cash payment you make toward the property purchase price, with the mortgage covering the remainder. The deposit is expressed as a percentage of the property value—for example, a 10% deposit on a £250,000 property is £25,000, with the mortgage covering the remaining £225,000. The size of your deposit significantly affects your mortgage: larger deposits unlock lower interest rates, more lender choice, easier approval, lower monthly payments, and less interest paid over the mortgage term. Conversely, small deposits mean higher rates, limited lenders, stricter criteria, and higher overall costs. The minimum deposit for most residential mortgages is 5% (95% LTV), though buy-to-let mortgages require minimum 25% deposits.
Deposit sources include personal savings (most common—must show funds in your account for 3-6 months for anti-money laundering compliance), gifts from close family members (parents, grandparents, siblings—require gift letters and proof of donor's funds), equity from selling your current property (very common for home movers), government schemes like Lifetime ISA (save £4,000/year, get 25% government bonus up to £1,000 annually, for first-time buyers under 40), inheritance, redundancy payouts, or bonuses. Each source requires specific documentation to prove legitimacy. Gifted deposits are widely accepted but need detailed evidence including signed gift letters confirming it's not a loan, donor's bank statements showing available funds, and donor's ID and proof of address.
The impact of deposit size is substantial: at 95% LTV (5% deposit) expect rates of 5.5-7% with limited lender availability; at 90% LTV (10% deposit) rates drop to 4.5-6% with more lenders; at 80% LTV (20% deposit) rates are 3.8-5% with best lender choice; and at 60% LTV (40% deposit) rates are 3.3-4.5% with access to premium products. For example, on a £200,000 mortgage over 25 years, the difference between 6% and 4% interest rates is £233/month and £70,000 over the term. Building your deposit faster involves: maximising LISA contributions if you're a first-time buyer (free £1,000/year from government), reducing outgoings, increasing income through overtime or side hustles, living with parents temporarily to save rent costs (typically £800-£1,200/month), and avoiding lifestyle inflation as your salary increases. Every additional 5% deposit saved typically reduces your interest rate by 0.1-0.3% and significantly improves your mortgage terms and monthly affordability.
Key Benefits of Larger Deposits
Larger deposits unlock significantly lower interest rates—20%+ deposit saves thousands over mortgage term
Higher deposits improve affordability assessment and may increase maximum borrowing amount
Savings, gifts from family, equity from sale, Help to Buy ISA/LISA, and inheritance all valid
Larger deposits mean smaller loans—lower monthly payments and less interest paid overall
Expert Tips & Insights
Minimum deposits by property type: Standard purchase: 5-10% (£12.5k-£25k on £250k property). First-time buyers: 5% minimum (95% LTV mortgages available but limited lenders, higher rates). Buy-to-Let: 25% minimum (£62.5k on £250k). Second homes: 15-25% (£37.5k-£62.5k). New builds: often 5-10% same as resale. Help to Buy: 5% with government equity loan. Larger deposits: 10% good choice, 15% better rates, 20%+ best rates/most lenders, 25%+ excellent rates, 40%+ access to wealthier borrower products. Every 5% deposit increase typically reduces rate 0.1-0.3%.
Gifted deposits from family are widely accepted but require documentation: Lenders accept gifts from: parents, grandparents, siblings, aunts/uncles, or close family. NOT friends, employers, or non-relatives (very limited lenders accept). Required evidence: Gift letter stating: amount, relationship, confirms it's a gift not a loan, donor has no claim on property, signed and dated. Proof of donor's funds (bank statements showing funds available—anti-money laundering). Donor's ID and proof of address. Funds must be in your account 3+ months before application ideally, or transferred just before exchange with full audit trail. Some lenders allow direct transfer from donor to seller's solicitor at completion.
Deposit sources: Personal savings (most common, must show 3-6 months in your account). Help to Buy ISA (closed to new applicants 2019, existing can continue—£3k + 25% government bonus max £3k). Lifetime ISA (LISA): save up to £4k/year, 25% government bonus (max £1k/year), withdraw tax-free for first home under £450k or after age 60. Restrictions: property under £450k, first-time buyer, account open 12+ months. Penalty: 25% charge if withdrawn for non-qualifying purposes (lose bonus + some capital). Shared Ownership deposit grants (limited regional schemes). Regular Saver accounts (2-5% interest). High-interest current accounts. Premium Bonds (no interest but enter draw).
How deposits affect your mortgage: 5% deposit (95% LTV): rates 5.5-7%, limited lenders, stricter affordability, higher monthly payments. 10% deposit (90% LTV): rates 4.5-6%, more lender choice, easier approval. 15% deposit (85% LTV): rates 4-5.5%, good lender choice. 20% deposit (80% LTV): rates 3.8-5%, best lender choice, significantly better affordability. 25% deposit (75% LTV): rates 3.5-4.8%, excellent choice. 40% deposit (60% LTV): rates 3.3-4.5%, wealthier borrower products. Example: £250k property, £1,250/month budget. At 95% LTV (5%): borrow £211k at 6% = £1,266/month. At 80% LTV (20%): borrow £223k at 4.5% = £1,130/month—can borrow more with smaller payment.
Ways family can help beyond gifted deposits: Guarantor mortgage: parent guarantees your mortgage using their property/savings as security. You get 100% mortgage (0% deposit) but parent liable if you default. Joint Borrower Sole Proprietor (JBSP): parents go on mortgage (their income counts) but not on property title. Increases borrowing, you own 100%. Family Springboard/Deposit Unlock: family deposits 10% in savings account (earns interest) as security, released after 3-5 years good payment history. Allows 100% mortgage. Loan from family: must be declared, affects affordability (repayment counted as monthly commitment), requires loan agreement. Banks of Mum & Dad gifted £9.2 billion in 2023—now UK's 10th largest mortgage lender equivalent.
Strategies to save deposit faster: Set target monthly savings (use standing order to separate account on payday). Open LISA if first-time buyer under 40 (£4k/year + £1k government bonus = £5k deposit contribution annually). Reduce outgoings: cancel subscriptions, downgrade phone contract, reduce eating out (track spending 1 month—identify savings). Increase income: side hustles, overtime, sell unwanted items. Live with parents 1-2 years (save £800-1,200/month rent). Government schemes: Help to Buy ISA (existing accounts), LISA, Shared Ownership (smaller deposit needed). Avoid: high-risk investments (crypto, volatile stocks—keep deposit safe), lifestyle inflation (as salary rises, increase savings not spending), unnecessary large purchases. Timeline: £15k deposit at £500/month = 30 months. At £800/month = 19 months. LISA bonus accelerates by 25%.
Frequently Asked Questions
Maximise Your Deposit Strategy
Our mortgage experts will help you understand deposit requirements, identify all available sources including government schemes, and create a savings strategy to reach your homeownership goals faster.