How Much Deposit Do You Need to Buy a Home?

What is the minimum deposit?

Lenders usually ask for a deposit of at least 5% of the property price. So for a £250,000 home, the smallest deposit would be £12,500. However, the more you can put down, the more choice you have and the lower the rate you can usually get.

Some lenders offer mortgages with deposits of less than 5%, such as family-assisted products where relatives help with security or savings. These are less common and can have strict terms.

Why deposit size matters

The deposit determines your loan-to-value (LTV)Loan-to-value (LTV)Loan-to-value, or LTV, is the size of your mortgage as a percentage of the property's value.Read more →, the proportion of the price you borrow. A lower LTVHow Mortgages Work in the UK: A Beginner's GuideHow UK mortgages work: deposits, loan-to-value, repayment versus interest-only, fixed and variable rates, affordability checks and the steps to getting one.Read more → means lower risk for the lender, so better rates are available at lower LTVs.

The difference between rates in different bands can change the monthly payment by a meaningful amount, so it is worth running the numbers in our mortgage repayment calculator.

A larger deposit also gives you a buffer if house prices fall. If you borrow 95% and values drop, you may end up in negative equityNegative equityNegative equity means your property is worth less than the mortgage you owe on it.Read more →, where the property is worth less than your mortgage, which can make it difficult to remortgageHow to Remortgage: A Step-by-Step UK GuideHow remortgaging works in the UK: when to do it, how much it saves, fees, early repayment charges, product transfers and the steps from start to finish.Read more → or move.

Other costs to add to your savings

The deposit is not the only upfront cost. You also need money for legal fees, surveys, mortgage fees, moving costs, and, depending on the price and your circumstances, stamp dutyThe Costs of Buying a Home in the UKA checklist of the costs of buying a home in the UK: deposit, stamp duty, legal fees, surveys, mortgage fees, moving costs and ongoing running costs.Read more →. Our guide to the costs of buying a home explains each one. Leave extra for furniture and repairs.

How to save a deposit

1. Set a target. Choose a realistic price range, then calculate 5% to 10% of it plus other costs.
2. Work out a monthly saving figure. Divide your target by the number of months. Use our savings growth calculator to see the effect of interest.
3. Automate. Set up a standing order for payday. See how to save money each month.
4. Cut costs. Review your bills and spending; see how to cut household bills.
5. Use tax-friendly accounts. The Lifetime ISA lets eligible people aged 18 to 39 save up to a limit each year with a government bonus, if the money is used to buy a first home up to a price cap or for retirement. Withdrawing for other reasons incurs a penalty. Check the current rules on GOV.UK before opening one.
6. Use windfalls. Put bonuses, tax refunds and gifts into the deposit fund.
7. Consider a gifted deposit. A relative may be able to give you money, but lenders will want a letter confirming it is a gift with no ownership or repayment expected.

Government schemes

There are schemes for first-time buyersFirst-Time Buyer Schemes in the UK ExplainedAn overview of UK first-time buyer help: Lifetime ISA, shared ownership, mortgage guarantees, stamp duty relief and schemes in each nation.Read more → and others in different parts of the UK, such as shared ownership, discounted purchase and mortgage guarantee schemes. Rules change, so see our guide to first-time buyer schemes and check GOV.UK for the current position.

Where to keep deposit savings

Keep the money somewhere safe and easily accessible, such as an easy-access or fixed-term savings account or cash ISA, depending on when you will buy. Money you need within a few years should not be exposed to the ups and downs of investments. Check that your account is covered by the Financial Services Compensation Scheme.

Do I need a bigger deposit if I am self-employed?

Not necessarily, but lenders usually ask for evidence of income, such as two to three years of accounts or tax returns. Having a larger deposit can make approval easier.

Using your deposit wisely

• Do not drain your emergency fund. You need cash after you move for unexpected costs. See how to build an emergency fund.
• Avoid borrowing the deposit. Lenders may refuse mortgages if the deposit is borrowed, and it increases your risk.
• Do not forget the monthly cost. A smaller deposit means a higher monthly payment.

Example: how deposit size changes the loan

Suppose you want to buy a £240,000 home. With a 5% deposit of £12,000, you borrow £228,000. With a 10% deposit of £24,000, you borrow £216,000. With 25%, or £60,000, you borrow £180,000. Even before taking the interest rate into account, the higher deposit cuts the loan by £48,000 compared with the 5% option. Because lenders usually offer lower rates at lower LTV, the monthly payment can fall by more than the loan reduction alone would suggest. Try these figures in the mortgage calculator with the rates currently on offer.

How long will it take?

Divide the amount you need by what you can save each month. For example, to save £15,000 in three years you need to put aside about £417 a month, before interest. If that feels out of reach, you might extend the timeline, find ways to increase your income, share costs with a partner or consider a lower-priced property or a different area. It is better to take longer than to rush into a purchase you cannot afford.

Common mistakes

• Using savings meant for emergencies
• Forgetting the extra costs
• Assuming the first offer is the best
• Taking on new credit, such as a car loan, just before applying, which can affect affordability
• Ignoring the effect of rate changes when the deal ends