How much deposit do you need for a mortgage?
The minimum deposit for a residential mortgage in the UK is typically 5% of the property's purchase price, though a larger deposit will give you access to better interest rates and improve your chances of approval. On a £250,000 property, a 5% deposit is £12,500, while a 10% deposit would be £25,000.
Deposit size is expressed as a loan-to-value (LTV) ratio. A 5% deposit means a 95% LTV mortgage — you are borrowing 95% of the property's value. The lower the LTV, the better the rates available. The biggest rate improvements typically come at 90% LTV, 85% LTV, 80% LTV, 75% LTV, and 60% LTV thresholds.
How deposit size affects your mortgage rate
The difference in interest rates between LTV bands can be significant. As an example, a two-year fixed rate might be 5.5% at 95% LTV but only 4.2% at 75% LTV. On a £200,000 mortgage over 25 years, this 1.3% difference equates to roughly £150 per month or £3,600 over a two-year fixed period.
Over the full mortgage term, the impact is even greater. A lower interest rate means more of each payment goes towards reducing the capital balance, so you build equity faster and pay less total interest. This is why many financial advisers recommend saving for the largest deposit you can, even if it means delaying your purchase by a year or two.
The table below gives a rough indication of how rates vary by LTV (actual rates change frequently and depend on market conditions, lender, and product type):
- 95% LTV: Highest rates, limited lender choice
- 90% LTV: Noticeably better rates, wider lender choice
- 85% LTV: Further rate improvement, good range of products
- 80% LTV: Significant rate improvement, strong product range
- 75% LTV: Near the best rates available
- 60% LTV: Best rates in the market
Where can your deposit come from?
Lenders require a clear audit trail for your deposit funds, in compliance with anti-money laundering regulations. Acceptable deposit sources include:
- Personal savings: The most straightforward source. Lenders like to see a consistent savings pattern over at least three to six months
- Gifted deposits: A gift from a family member (usually parents) is widely accepted, provided the donor signs a gifted deposit letter confirming the money is a gift with no expectation of repayment. The donor typically needs to provide proof of identity and the source of their funds
- Inheritance: Accepted by all lenders, with probate documentation or solicitor's letter as evidence
- Sale of another property: If you are selling to buy, the equity from the sale forms your deposit
- Lifetime ISA bonus: The 25% government bonus on LISA savings can boost your deposit
- Investments: Proceeds from selling shares, funds, or other investments, with transaction records as evidence
⚠️ Lenders will not accept a deposit that has been borrowed, whether from a personal loan, credit card, or informal loan from a friend. If they discover that your deposit is funded by borrowing, the mortgage application will be declined. Gifted deposits must genuinely be gifts with no repayment obligation.
Gifted deposits explained
Gifted deposits are extremely common in the UK, particularly for first-time buyers. According to various industry surveys, around 25–30% of first-time buyers receive financial help from family members. Most lenders accept gifted deposits from immediate family members (parents, grandparents, siblings), and some accept gifts from more distant relatives or even friends, though this is less common.
The process requires a signed gifted deposit letter stating the donor's name and address, the amount of the gift, confirmation that it is a non-repayable gift with no interest in the property, and the donor's source of funds. The donor will also need to provide identification and evidence of where the money came from.
Be aware that gifted deposits can have inheritance tax implications. If the donor dies within seven years of making the gift, it may be included in their estate for IHT purposes. Gifts between spouses or civil partners are exempt from IHT.
Government schemes to help with deposits
Several government schemes can help first-time buyers with smaller deposits:
- Lifetime ISA: Save up to £4,000 per year and receive a 25% government bonus (£1,000 per year). Available for property purchases up to £450,000
- First Homes scheme: Offers new-build properties at a discount of at least 30% off market value. The discount applies permanently, passing to future buyers
- Shared Ownership: Buy a share of a property (25–75%) and pay rent on the remainder. This means you only need a deposit on the share you buy
- 95% mortgage guarantee scheme: Government guarantee encourages lenders to offer 95% LTV mortgages. Most major lenders now participate
💡 If you are saving for a deposit, consider opening both a Lifetime ISA and a regular savings account. The LISA gives you a 25% bonus on the first £4,000 per year, while a regular saver account (offered by most high street banks) typically pays a higher interest rate than standard savings accounts for systematic monthly saving.
How to save for a deposit faster
Building a deposit takes discipline, but several strategies can speed up the process. Create a dedicated savings account separate from your day-to-day spending. Set up a standing order to transfer money on payday before you have a chance to spend it. Reduce discretionary spending by reviewing subscriptions, eating out less, and cutting back on non-essential purchases. Consider increasing your income through overtime, a side job, or selling unused possessions.
A realistic savings plan with specific monthly targets makes the goal feel achievable. For example, saving £500 per month would give you a £12,000 deposit in two years, or £15,000 including £3,000 of LISA bonuses (assuming £1,000 per year from the government bonus and interest).
Get expert help with your mortgage deposit
A mortgage broker can advise on the optimal deposit level for your circumstances, help you understand which LTV band gives you the best value, and identify any government schemes you may be eligible for. They can also ensure your deposit evidence meets lender requirements, preventing delays in the application process.
Nesto connects first-time buyers and home movers with experienced mortgage brokers who can help you maximise your buying power. Get free, no-obligation guidance today.