Saving for a house deposit is the biggest step you’ll take towards owning your own home. It can seem like a huge task, but saving more now will help you out in the future.
Under the Mortgage Guarantee Scheme, which runs until the end of December 2023, it's possible to get a mortgage with a 5% deposit for the home you’d like to buy.
That said, many banks still prefer first-time buyers to have a 10% deposit in 2023.
Saving a bigger deposit will open up more mortgage options for you. You’re likely to get lower interest rates and lower monthly repayments.
If you want to buy a property worth £250,000, here’s what you’d need to save for a deposit in 2023:
5% deposit: £12,500
10% deposit: £25,000
15% deposit: £37,500
Our mortgage calculator can give you an idea of how much you could borrow and how changes to your mortgage could affect your repayments.
Why is it good to have a bigger house deposit?
If you have a bigger deposit, banks are more likely to offer you lower interest rates and lower monthly repayments.
Plus, you might get several offers from different banks, so you’ll have more choice to find the best mortgage plan for you.
The more money you put down, the smaller the risk the bank takes by lending to you. So they reward you with a better deal on the loan.
What does a bigger house deposit mean for my loan-to-value (LTV)?
Mortgages are often described in terms of ‘loan-to-value’ (LTV). The LTV is the percentage of the home’s value that you’ve borrowed from the bank.
So if you have a 10% deposit, your LVT would be 90% because that’s the size of the loan from the bank.
You get a lower LTV simply by having a bigger deposit. And with a lower LTV comes lower interest rates.
Find out more about loan-to-value (LTV) and what it means in our guide.
What deposit do I need to get a lower interest rate in 2023?
Banks tend to have interest bands, where a certain deposit will get you a lower interest rate.
In 2023, the interest bands are usually:
10% deposit (90% LTV) – highest interest
25% deposit (75% LTV) – lower interest
40% deposit (60% LTV) – lowest interest
Once you hit the 60% band, you've hit the jackpot, as this opens up the best lending rates from banks and building societies.
Find out more about why interest rates change and what it means for your mortgage.
How do I get started saving for a deposit?
Work out what you want to spend on a property and when you want to buy. You can then calculate how much you need to save each month.
Find a good savings account
Scout around for the best savings accounts available, offering the highest rates of interest.
The easiest way to start saving for your new home is to automate your savings.
Set up automatic transfers from your current account into your savings account as soon as you get paid, that way the money’s gone and you can’t spend it.
You can find savings accounts on sites like Money.co.uk.
Open a Lifetime ISA
The government's Lifetime ISA scheme is a good way to save money and get more back than you put in.
You can pay in up to £4,000 a year. The government will add 25% to your savings, up to £1,000 a year.
You need to be between 18 and 39 to apply for a Lifetime ISA, but you can keep stashing cash away until you buy your home or until you're 50.
You can open a Lifetime ISA with most high-street banks.
Check out our full guide to saving for a deposit for more tips and advice.
Can you buy a house with a 5% deposit?
Yes you can. But there are downsides to having the minimum you can get away with.
With a lower deposit, you’ll probably be offered higher interest rates. You’ll have to make bigger monthly repayments too.
The government introduced 95% mortgages via the Mortgage Guarantee Scheme in April 2021, which aims to help first-time buyers get on the ladder with a 5% deposit.
The scheme is running until 31 December 2023 for homes worth up to £600,000.
How much can I borrow with a 5% mortgage deposit?
How much you can borrow for a mortgage depends on how much you earn.
Banks will lend up to 4.5 times your annual salary.
So if you want to buy a home for £200,000 and you have a 5% deposit (£10,000), you need to be earning £42,200 a year.
The downsides to borrowing with a 5% mortgage
Saving for a bigger deposit will give you more choice with mortgages, giving you access to lower interest rates.
Lenders typically charge higher interest rates to people with smaller deposits.
A bigger deposit could also make it easier for you to pass a mortgage affordability test as your monthly repayments will be lower.
Mortgage lenders look at how much salary you have coming in, alongside your typical outgoings when deciding if you can afford a loan. The lower your monthly repayments are, the more likely you’ll be to pass the test.
Can you get a mortgage with a 10% deposit?
Yes – most banks like to see that you have a 10% deposit for the property you’re buying.
With a 10% deposit, you’ll be offered lower interest rates.
As you’re borrowing less and have a lower interest rate, your monthly repayments will be lower.
So you’ll find it easier to keep up with the mortgage payments, and you might even be able to make overpayments if you can afford it.
Can I get a 100% mortgage?
These days, very few lenders offer a 100% mortgage. They were more common before the financial crash in 2008.
A 100% mortgage lets you borrow the full value of your home with no cash deposit.
In May 2023, Skipton Building Society introduced a 100% no-deposit mortgage, which allows renters to buy their first home without a deposit.
In most cases, 100% mortgages are only available through guarantor mortgages. You need a guarantor (usually a parent) who’ll be responsible for paying the mortgage if you can't.
These types of mortgages carry a much bigger risk if house prices fall. You could find yourself in negative equity, meaning the value of your home is worth less than the mortgage you’re paying for it.
Should I borrow money from my family for a bigger deposit?
The bank of Mum and Dad is now the UK’s 9th biggest mortgage lender, according to the Mortgage Advice Bureau.
If you can borrow an extra 5% from your family to give you a 10% deposit, it will put you in a better position to get a good mortgage. You’re more likely to qualify for a lower interest rate on your mortgage.
Borrowing less from the bank might also put you on the right side of the affordability checks.
But if you go down this route, it's important to know where you stand with repaying the money to your family.
Make sure you know if the money is a gift or a loan. If it’s a loan, when would your family want you to pay them back?
Tapping into your parents’ savings may help you to get on to the property ladder quicker, but it can create family tensions if they need the money back and you can't repay them.
What is Shared Ownership and what deposit do I need for it?
Shared Ownership is a government scheme that allows you to buy part of a property and pay rent on the rest.
Under the scheme, you buy (and partly rent) the home from a non-profit housing association.
Because you’re only buying a part of the property, you can buy it with a smaller deposit and mortgage.
A smaller mortgage means smaller repayments, but you’ll also need to pay:
rent on the share of the property you do not yet own
monthly service charges
Find out more about Shared Ownership and if it’s right for you.
What is Deposit Unlock and what deposit do I need for it?
Deposit Unlock is a relatively new scheme launched by the house-building industry to enable you to buy a new-build home with just a 5% deposit.
When you buy your home, the building developer pays a percentage of the purchase price into an insurance policy for your mortgage provider.
That insurance policy in turn reduces the risk of lending for your mortgage provider, as it will cover any potential losses for them if you were to default on your mortgage.
The insurance also enables you to benefit from a lower interest rate than you would normally get if you were borrowing 95% of your property’s value.