When it comes to buying a home in the UK, one of the biggest questions potential buyers have is, “How much deposit do I need for a mortgage?”. Generally speaking, you’ll need to put down a deposit of at least 5% of the property’s value in order to get a mortgage. This has been the standard for many years. However, that 5% costs a lot more today than it was a few years ago. Let’s look at how much money an average homebuyer would need to pay upfront if they want to apply for a mortgage.
How Much Deposit Do I Need to Apply for a Mortgage?
The deposit is the amount of money that you put towards the purchase of your home. The larger the deposit, the lower your mortgage payments will be. In the UK, you will need to put down a deposit of at least 5% of the purchase price of the property.
If you’re a first-time buyer, you may be able to get a mortgage with a deposit as low as 5% if you take out a government-backed loan. However, these loans usually come with strict eligibility requirements and may not be the best option for everyone.
The Average Deposit for a First-Time Buyer
The amount of deposit you need will vary depending on the lender and the type of mortgage you are applying for. For most people, the minimum deposit will be 5% of the property’s purchase price. However, some lenders may require a higher deposit, especially if you are buying a more expensive property.
According to the latest figures from the UK’s Office for National Statistics (ONS), the average deposit for a first-time buyer in the UK is now over £33,000. This is a significant increase from the £12,000 average deposit back in 2003. Now, this is just the average. The deposit rates will differ depending on your location and your lender.
Why Has the Average Deposit for Mortgage Increased?
There are a number of reasons why the average deposit has increased so significantly over the past 15 years. Firstly, house prices have increased significantly during this period. According to the ONS, the average house price in the UK was £168,000 in 2003. In 2018, it had increased to £226,000. This is a significant increase of 34%. In 2021, that number grew to £281,000.
Stricter lending criteria from banks and other lenders is another factor that has contributed to the increase in the average deposit. Lenders are now much more cautious about who they lend to and are often requiring larger deposits. This is especially the case for buyers with smaller deposits and those with less than perfect credit histories.
For Mortgage Deposits, Bigger Is Always Better
The minimum deposit you need for a mortgage in the UK is 5%. However, this doesn’t mean that you should only put down a deposit of 5%. A higher deposit will give you access to lower mortgage rates and could save you thousands of pounds in interest over the entire life of your mortgage. So, if you can afford to put down a larger deposit, it’s definitely worth doing so.
As a general rule, it is a good idea to aim for a deposit of at least 10% so that you can avoid paying for PMI and get the best interest rate possible. However, this may not be possible for everyone. If you are unable to save up a large enough deposit, you may still be able to qualify for a mortgage by taking out a government-backed loan or by paying for PMI.
Conclusion
First-time buyers may be able to get a mortgage with a smaller deposit but will usually have to pay a higher interest rate. It’s important to compare mortgage deals to find the best one for your needs. If you’re looking to buy a property in the UK, it’s essential to save up as much as you can for a deposit. The more you can put down, the lower your monthly payments will be.
If you’re looking for the best mortgage deals, consider Everest Mortgage Services. Our team of independent mortgage advisors will help you secure your mortgage easily. With our experience, we’ll help you explore all lenders until you find the most suitable for you. Contact us today to get started.
