A deposit is an amount of money provided by the buyer to obtain a mortgage after contracts are exchanged on the property in question. The most common amount to provide as a deposit is between 5% and 10% of the price paid to buy the property.
As a rule of thumb, the more money you can put down as a deposit, the better your options are for seeking a competitive mortgage. Typically, 5% is the smallest deposit you can provide. That said, many lenders insist on a 10% deposit as a minimum percentage. If you can save more, you’ll find banks and building societies can provide you with better deals. The larger the deposit, the lower the interest rates are on the available mortgage deals on the market.
Many sources state that 20% is the ideal sum to save as a deposit on a property in the UK for this very reason. If you can offer even more, the deals get better still. This is typically only possible for those who are moving from one property to another. They can use the proceeds from the property they are selling to provide a bigger deposit on their next property.
However, if all you can manage is a small deposit such as 5%, there are still some competitive deals on the market. Shopping around is always important, as it gives you a better idea of who is offering which deals.
You may sometimes hear about 0% deposit mortgages too. While these were popular in recent years, this cannot be said of the current mortgage market. Many saw them as risky deals that could lead to problems in paying back an expensive mortgage deal. It is always advisable to save whatever you can to create the biggest deposit you can when looking to buy your own property.
The most competitive mortgage deals can be had with a 40% deposit and this is the same for residential and buy to let mortgages.