Deposits – What Are My Options?

I know I need a deposit to buy a home but I’m not sure what one is. Help!
To be able to take out a mortgage – that is, a loan to buy a house – you are going to need to pay a deposit. This is the percentage of the house price you need to pay, with the mortgage provider covering the rest.

How much will I need?
That depends on what you’re buying. According to the Nationwide House Price Index, London’s average house price is £480,000, whereas it’s £133,000 in the north of England. Ever since the financial crash of 2008, banks have usually asked for a deposit of at least 10 percent of the property’s value (‘loan to value’). So, in London, you’ll need around £50,000, and £13-14,000 in the North. It is worth noting that as the economy continues to normalise following the initial shock of the COVID pandemic, providers are beginning to once again offer lower deposit mortgages so you may be able to find a mortgage product with less than a 10 percent deposit requirement, if that’s right for you.

Does the size of my deposit give me a better choice of mortgages?
Absolutely. The more you have to begin with, the better your options. With a sizable deposit, you will have access to a greater variety of mortgage products, making it easier to find a mortgage which works for you, whether that’s in terms of monthly repayments, interest rates or upfront fees.

How can I get the money together for the deposit?
For most people, the simple answer is to save. If it’s an option, then asking your parents for the cash – i.e. the ‘Bank of Mum and Dad’ – could also be an answer.

Is there any way the Government can help?
Yes, most obviously in the shape of a Lifetime ISA (or ‘Lisa’). It’s like a regular ISA – i.e. a tax-exempt savings account – but if you can show you’re using it for a deposit on a home, the Government will give you a 25 percent bonus on whatever you save. The Government also has loan support for first time buyers. Currently that’s the Help To Buy: Equity Loan scheme, which was introduced in 2013 and expires this year (2021). A new scheme will replace it and run through to 2023 – exclusively for first time buyers

Sounds interesting, can you tell me more about the new scheme?
From April, if you are a first-time buyer in England and have 5% deposit saved towards the purchase price of a new-build home from a registered homebuilder, you can borrow between five and 20% of the property’s purchase price (40% in London) from the government using the Help to Buy equity loan scheme. This means you could benefit from accessing cheaper and more varied mortgage rate offers, as your mortgage loan will be reduced to 95-75% loan to value (or even as low as 55% within London). Even better, you don’t have to pay interest on the equity loan for the first five years, and will only have to pay it back when you sell the house (or when the loan’s term ends).

*Please note the Help to Buy equity loan scheme closed to new applications on 31 October 2022.