And how can family help you onto the property ladder?
When buying a home, one of the biggest questions is how much deposit you need. While some mortgages are available with as little as a 5% deposit, having more money saved could make a significant difference to your mortgage options and monthly repayments.
For first-time buyers, help from parents or grandparents could also make getting onto the property ladder a little easier.
Why Does Your Deposit Size Matter?
Mortgage lenders use something called Loan to Value (LTV). This is the percentage of the property’s value you’re borrowing.
For example, on a £250,000 property:
| Deposit | Mortgage needed | LTV |
|---|---|---|
| £12,500 (5%) | £237,500 | 95% |
| £25,000 (10%) | £225,000 | 90% |
| £50,000 (20%) | £200,000 | 80% |
Generally, the larger your deposit, the lower your LTV. This can give you access to more competitive interest rates and a wider choice of mortgage products.
A larger deposit also means borrowing less, which can help reduce your monthly repayments.
Could Saving a Little More Make a Big Difference?
Mortgage lenders often have different interest rates depending on your LTV, with common bands at 95%, 90%, 85%, 80% and 75%.
For example, increasing your deposit from 9% to 10% could potentially open up better mortgage deals.
However, saving more doesn’t always mean getting a better rate. It depends on the lender and the products available.
It’s worth speaking to a mortgage adviser before deciding whether to buy now or continue saving.
Can Parents or Grandparents Help with a Deposit?
Absolutely. Many first-time buyers receive help from family members, often referred to as the Bank of Mum and Dad.
There are several ways family members may be able to help.
Gifted deposits: Parents or grandparents can give money towards a deposit. Most lenders will require confirmation that the money is a genuine gift, doesn’t need to be repaid and gives the donor no ownership rights in the property.
Family-assisted mortgages: Some lenders offer arrangements where family members can use savings or property as additional security, potentially helping buyers with smaller deposits. There are risks to the family member’s money or property.
Joint Borrower Sole Proprietor mortgages: A parent or eligible family member may be able to support the mortgage using their income without becoming a legal owner. They would normally share responsibility for the mortgage debt, and this option primarily helps with affordability rather than the deposit itself.
Is a Bigger Deposit Always Better?
Not necessarily. While a larger deposit can improve your mortgage options, it’s important not to use every penny of your savings.
You’ll still need money for legal fees, moving costs and unexpected expenses.
Parents and grandparents should also consider their own financial security before making substantial gifts.
The right deposit depends on your circumstances, the property you’re buying and the mortgage products available.
How Miles Rhodes Mortgages Can Help
At Miles Rhodes Mortgages, we provide Whole of Market mortgage advice, helping first-time buyers and home movers understand their options.
Whether you have a 5% deposit, are considering saving more or have family members who would like to help, we can explore suitable mortgage options and explain the differences.
Thinking of buying your first home? Contact Miles Rhodes Mortgages before making a decision. A conversation now could help you make the most of your deposit.
Your home may be repossessed if you do not keep up repayments on your mortgage.
Mortgage availability and rates are subject to lender criteria, affordability and individual circumstances
