Saving for a house deposit can be difficult, when it comes to taking out a mortgage, the size of your deposit is an important factor. A larger deposit can help you secure a lower interest rate and help with mortgage approval. Several types of mortgage deposits can be used when applying.

If you are looking to get a mortgage as a first time buyer there are several ways you can obtain a deposit. We will compare mortgages and discuss the mortgage term you would like to go to.

How much deposit do I need for a mortgage?

The amount of deposit you will need will be assessed on the total purchase price of the property. If you have a smaller deposit interest rates may be higher which means your monthly repayments will also be higher.

However, if you have a higher deposit then you will have more mortgage deals available to you with a more favourable interest rate with lower monthly payments. The reason for this is mortgage lenders prefer a bigger deposit as they see it as less risky. This may mean you need to save more for longer but you will be in a better position with the mortgage providers.

The minimum deposit required is at least 5% of the market value. The bigger the mortgage deposit you have, the better your chances of being accepted for a mortgage due to there being less risk.

With rising house prices across Liverpool over 2022 the deposit amount needed to secure a property has risen. If house prices fall then your deposit amount will also drop.

If you are looking to purchase a buy to let property then you will be required to have a minimum deposit of 25% of the property's value this is because there is an increased risk with this type of mortgage due to the uncertainty of tenants paying their rent or missing payments. Lenders have to be sure that the applicant will pay their mortgage payments.

How does a mortgage deposit work?

A mortgage deposit is a percentage of the property's purchase price. A deposit is an amount you pay upfront for the property. This is effectively the percentage you own outright. If the property's value is £200,000, a 10% deposit would be £20,000. The remaining amount is the Loan to value (LTV). The remaining 90% of the property value will be your mortgage.

A mortgage with a loan to value ratio lower than 60% will usually have the lowest possible interest rates. Whereas a low deposit mortgage for example LTV of 95% can still be approved, you should expect the associated rate of interest to be higher.

What different types of deposits are there?

The most common type of deposit is savings. A deposit that you have saved up with your own funds is known as savings. The lender will look at how much deposit you have saved and how you have saved this when assessing your application. The lender may ask for a copy of your savings account.  The lender will look at how much deposit is in your own savings when assessing your mortgage application.

Generally, mortgage lenders will require that at least 5-10% of the property price be paid using this method.  If you are using a small deposit this will get you on the property ladder sooner as it won't take you as long to save up.

Another type of deposit is a gifted deposit, which involves receiving money from a family member or friends to put towards the purchase of the property. This kind of deposit is often used by first-time buyers who are looking for help in getting onto the housing ladder. This type of deposit needs to be an unrepayable amount given to you. Most lenders will require that a minimum amount is gifted, usually around 10%.

Some mortgage providers will accept deposits that are in the form of a personal loan that has been taken out to be used as a deposit, this will be factored into your affordability calculations as this is a monthly commitment as loans are repaid to the provider. If you choose this method there will be fewer lenders available to you.

Finally, you may be able to use equity from another property as a deposit. Equity is the difference between what a property is worth and any mortgage or loan secured against it. You can also use the equity from the sale of a property if you are moving house.

 If you own another property, you may be able to use some of this equity as a deposit towards your new home, this is done by remortgaging the property and borrowing the additional funds to be used as a deposit for a new property.

When considering which type of deposit to use, it’s important to take into account any costs associated with the deposit, such as legal fees. It’s also important to make sure that you have the necessary funds available to cover any unexpected costs during the purchase process.

Can you get a mortgage with no deposit?

One of the common mortgage deposit questions is can I get a mortgage without a deposit? Unfortunately, it is highly unlikely to get a mortgage without a deposit. There are ways to secure a property if you have a relative who can help. Despite this, there may be a few lenders who will still provide you with a mortgage if you have a relative who can offer additional collateral. The main two types are:

• Use their home as security so if you fall behind on mortgage payments, lenders have the power to repossess it. The lender will put a charge against your relative property for a set period.
• Using family members' savings. The family member will transfer money into a savings account held by the lender for a set period but the relative will get these savings back when all payments are made.

What will the mortgage lender request from me?

Every mortgage provider, when assessing your mortgage application will ask for proof of deposit from you, this can be in different forms and different documents depending on your deposit type such as:

• Gifted deposit - the lender will require their gifted deposit letter/template to be filled in by you and sent over to them via us as the mortgage broker. They may also request proof of funds and ID.
• Savings/personal loan - bank statements showing the accrual of funds will be requested by us and the lender. For a cash deposit, the lender will need to see how these funds were obtained.
• Equity from the sale of property - the lender may request a completion statement showing the balance that is coming to you

Mortgage deposit explained

No matter which type of deposit you choose, it is essential that you understand all of the associated risks and costs before making a commitment. Make sure to speak with a qualified mortgage adviser to ensure that you are making the best decision for your financial situation.  They will be able to advise on the most suitable type of deposit for your circumstances and help to make sure that you can secure a competitive rate on your mortgage loan.

Mortgage deposits come in many forms, so it’s important to make sure that you understand your options and choose the best one for your needs. With the right advice, you can ensure that you have the funds available to purchase your new home in a way that works for you.

We look forward to hearing from you.

Any questions, we are happy to help!   Get in touch with us today at [email protected] or give us a call on 01516620188 and our team of mortgage advisers will be more than happy to help.