Guide

How much deposit do I actually need?

The deposit is usually the biggest obstacle between a first time buyer and their first home. Saving a meaningful sum while paying rent, covering living costs, and trying to get on with life is genuinely hard, and the numbers involved can feel daunting.

So let us be clear about what you actually need, what different deposit sizes unlock, and how to think about the trade-off between saving longer and buying sooner.

The minimum deposit

For most buyers using a standard residential mortgage, the minimum deposit is 5% of the property's purchase price. This is a 95% loan to value mortgage: the lender provides the other 95%.

• On a £200,000 property, 5% is £10,000.
• On a £250,000 property, 5% is £12,500.
• On a £300,000 property, 5% is £15,000.

95% mortgages are available from a number of mainstream lenders, and there is nothing wrong with using one. They exist precisely because not every buyer can save a larger deposit before they need to move. However, they come with a higher interest rate than you would get with a larger deposit, because the lender is taking on more risk.

What a bigger deposit unlocks

Mortgage rates are structured in tiers based on your loan to value ratio. The key thresholds are at 5%, 10%, 15%, and 20% deposit, or equivalently, 95%, 90%, 85%, and 80% LTV. At each threshold, better rates become available.

The difference between a 5% and a 10% deposit on a £250,000 property is £12,500 of additional saving. That is significant, but so is the impact on your mortgage rate and therefore your monthly payment and total interest cost.

Here is a rough illustration. On a £225,000 mortgage over 25 years:

At 95% LTV, a rate of around 5.5% might produce a monthly payment of approximately £1,379 and a total interest cost of around £188,000 over the term.

At 90% LTV, a rate of around 4.7% might produce a monthly payment of approximately £1,271 and a total interest cost of around £156,000.

The difference in monthly cost is around £108. The difference in total interest over 25 years is around £32,000.

These are illustrative figures and rates change regularly, but the principle holds regardless of the precise numbers. A larger deposit, even by one tier, has a meaningful impact on the long term cost of your mortgage.

The 10% deposit

A 10% deposit is the point at which the mortgage market opens up considerably. More lenders compete for your business at 90% LTV than at 95%, and the rates are noticeably better.

On a £250,000 property, a 10% deposit is £25,000. That is a significant saving goal, but it is achievable for many buyers over two to three years with a disciplined approach, particularly if you are using a Lifetime ISA, which adds a 25% government bonus on top of what you save.

For many first time buyers, 10% is the practical target. It keeps the deposit achievable while unlocking meaningfully better mortgage terms.

The 15% and 20% deposit

At 85% LTV, another tier of better rates becomes available. At 80% LTV, better still. The improvements become incremental at this point, the biggest single jump in available rates is usually between 95% and 90%, but they are still worth having if you can achieve them.

A 15% deposit on a £250,000 property is £37,500. A 20% deposit is £50,000. For many first time buyers, particularly in higher cost areas, saving these amounts takes years. Whether it makes sense to save longer versus buying sooner with a smaller deposit depends on your individual circumstances, the rate environment, and what is happening to property prices in your area.

There is no universal right answer. What is worth understanding is the trade-off you are making.

Renting while saving: the complication

One of the practical frustrations for first time buyers is that renting makes saving harder. A significant portion of your income goes to a landlord each month, and the longer you rent, the longer it takes to save.

At the same time, buying earlier with a smaller deposit means paying a higher mortgage rate and potentially more interest over time. This is the central tension for many first time buyers: save longer and get a better deal, or buy sooner with what you have.

There is no formula that resolves this cleanly. But a few things are worth considering.

If property prices in your area are rising faster than you can save, waiting may mean the goalposts keep moving. Buying with a smaller deposit while you can afford to, and remortgaging to a better rate as your LTV improves over time, can make sense.

If the market is flat or uncertain, waiting and saving a larger deposit reduces your mortgage cost and also reduces the risk of falling into negative equity.

A mortgage adviser can model both scenarios for your specific circumstances and help you think through the decision.

The Lifetime ISA: make the most of it

If you are a first time buyer between the ages of 18 and 39, the Lifetime ISA is one of the most effective savings tools available to you.

You can put up to £4,000 per year into a Lifetime ISA. The government adds a 25% bonus on whatever you save, up to £1,000 per year. Open the account and use it consistently, and over five years you could accumulate over £25,000 including the bonus, before any interest or investment growth.

There are conditions. The property must cost no more than £450,000. The account must have been open for at least 12 months before you use it toward a purchase. And if you withdraw the money for any other reason, you lose the bonus and pay a penalty.

Subject to those conditions, it is free money from the government. Use it.

Your deposit is not your only upfront cost

This is one of the most common areas where first time buyers are caught out. When budgeting for your purchase, you need to account for costs on top of your deposit.

• Solicitor fees and conveyancing: typically £1,500 to £3,000.
• Survey costs: £400 to £1,500 depending on the type.
• Mortgage arrangement fees: some products charge £500 to £1,500, though these can often be added to the mortgage.
• Stamp duty: first time buyers currently pay no stamp duty on properties up to £425,000, with partial relief up to £625,000. Above that, standard rates apply. Check the current thresholds as these have changed in recent years.
• Moving costs: at least £500 to £1,500 for a standard move, more for larger households or longer distances.

Budget for all of these separately from your deposit. Running out of cash on the day of completion because you spent more than expected on solicitors and surveys is a stressful situation that is entirely avoidable with proper planning.

If you want a clear picture of what you can achieve with the deposit you have saved, or how different deposit sizes would affect your mortgage options, an adviser can walk you through the numbers.

Have a chat, no pressure

This article is for informational purposes only and does not constitute financial advice. Always speak to a qualified mortgage adviser before making decisions about borrowing.