How much deposit do I need to buy a house?
Saving enough money for a deposit on a house is one of the biggest talking points for those looking to get onto or move up the housing ladder. For first time buyers especially, getting a deposit together can seem an enormous obstacle. But how much deposit do you really need to buy a house?
Mortgage Guarantee Scheme Introduced
Back in April of this year, the government introduced a new 95% mortgage guarantee scheme, designed to encourage lenders to return to offering this type of mortgage after they had all but disappeared during the pandemic. All the well-known High Street lenders are now offering mortgages under the scheme, and these are available to anyone buying a home as their main residence. Based on a typical property price of £250,000, securing a 95% mortgage would mean you need a deposit of £12,500.
Impact of LTV on Your Mortgage Interest Rate
However, an inescapable fact of mortgage life is the higher the amount of the mortgage compared to the value of the property (the loan-to-value or LTV ratio), the higher the interest rate. So, whilst you may be able to get a 95% mortgage, if you could save £25,000 for a 10% deposit on that £250,000 property, the lower interest rate on a 90% mortgage would offer you savings in the long term. Every extra 5% you put down as a deposit gives you access to better and better interest rates. A 20% deposit really opens up the mortgage market for you.
How to Calculate LTV
When looking at all the different mortgage deals out there, you can see how important it is to know the LTV for the particular property you are interested in. The calculation isn’t complicated. Start by subtracting your deposit from the house price, leaving you with the amount of mortgage you require. Divide the mortgage by the value of the house and multiply that figure by 100 to arrive at the LTV. Looking again at the example of a £50,000 deposit on a £250,000 property, this would result in an LTV of 80%. A larger deposit of £62,500 would give you an LTV of 75%.
Check Your Deposit With a Local Estate Agent
So, how much deposit do you need to buy a house? Although it’s clear that more is better, it might not be as much as you think. If you are looking for property in South Woodford, Wanstead E11 or Winchmore Hill N21, contact Estate Agents DABORACONWAY for further help and advice, or browse our range of London property for sale.
Posted on: 6 September 2021
