How much Mortgage Deposit Do I Need?

Getting a mortgage is often the biggest financial commitment we make in our lives, and if you’re a first-time buyer, it can seem overwhelming.

In this simple guide, we will answer your questions, giving you the confidence to take your first steps towards getting a mortgage and becoming a homeowner.

What is a mortgage deposit?

The mortgage deposit is the amount of money you put towards buying a home.

Very few people can afford to buy property outright, but many of us can save a percentage, with the rest covered by a mortgage.

Do I need a big deposit to get a mortgage?

In most cases you will need at least a 5% deposit, which means you’ll need to apply for a 95% mortgage from a lender.

According to the Office for National Statistics, the average UK house price in December 2023 was £285,000*, so a 5% deposit would be £14,250.

However, if you have a bigger deposit, you are more likely to be offered lower interest rates.

Mortgage lenders consider how much you need to borrow compared to the price of the property you are buying, known as the loan-to-value ratio, or LTV.

The bigger the deposit you contribute, the smaller the proportion of the price you need to take as a mortgage.

Different lenders have different approaches, but you may see a significant drop in interest rates if you have a 25% deposit, which means a 75% LTV, rather than a 5% deposit meaning a 95% LTV.

Use the TSB mortgage calculators to see how the size of your deposit affects interest rates.

Who sets mortgage rates?

Lenders set their own mortgage rates, but they are influenced by the Bank of England base rate and other factors like market conditions. Some mortgage deals are directly linked to the Bank of England base rate, either by tracking it, or being fixed at a certain level above it.

Whether you have a fixed rate or a tracker rate mortgage, the rate you pay to start off with is usually lower than the lenders standard variable rate.

It is a good idea to review your options when your product rate ends and before you go onto the standard variable rate - read our simple guide to remortgaging.

How much can I borrow?

Lenders will consider your income, your outgoings and financial commitments, such as childcare costs, loans or car finance, to check you will be able to afford your mortgage payments now and should interest rates rise in future.

The TSB mortgage calculator will give you an indication of how much you may be able to borrow from TSB.

Should I take the mortgage with the lowest interest rate?

The interest rate is one of the most important factors when you consider a mortgage, but it is not the only one. Make sure you look at other costs such as arrangement fees or charges for overpayments or early repayments to give you an idea of the overall cost of buying your home.

How can I get a better mortgage rate?

The size of your deposit will influence your mortgage rate, but lenders will also consider the length of the mortgage you want and the type of property.

Can I get a mortgage with a bad credit score?

Lenders want to be confident that you will meet your mortgage repayments every month, and a solid credit history is one of the best indicators of that.

If your credit rating is poor, the lender may feel there is a higher risk you might default, so if they offer you a mortgage, they are likely to charge a higher interest rate to make up for that.

Some lenders may not offer a mortgage based on certain factors such as previous credit issues, if you are unsure, it’s best to contact your lender.

To improve your credit score, you’ll need to make your monthly payments on time, for your existing credit agreements, including your mobile phone contract.

If you have a credit card, try not to use all of your available credit and try to minimise the amount of new credit applications you make as each application may leave a mark on your credit file.

You also need to make sure you are on the Electoral Register at your address.

*UK House Price Index - Office for National Statistics

Lending is subject to status and lending criteria, UK resident and 18+