Buying a new home is far from a cheap endeavour and budgeting for it is a key part of the process. One of the biggest outlays will be the deposit and knowing how much you are likely to need to save will help you to plan your move and will also help you set some realistic timelines. But, the 6 million dollar question is, how much deposit will you need to buy your new home?
The answer really isn’t that simple as it depends on a lot of factors. In this article we will take a look at some of those factors, give some indication as to the current mortgage offerings and then put that into context around the current property market prices.
What affects the amount of deposit needed?
The amount of deposit you will need depends on a few factors, the largest of which being the prevalent financial climate. If the financial climate is poor, when there is a recession or, like happened recently, things like a pandemic causes increased financial risk, mortgage lenders will typically require a larger deposit as standard. During the pandemic in 2020 and 2021, nearly all 95% mortgages were removed from the market and mortgage lenders were increasingly requiring around 25% deposits to reduce their risk. Other factors are around the type of property and your personal credit history. If a lender feels you might be a credit risk, they might ask for a higher deposit, but will almost certainly charge a higher interest rate. Deposit amounts for poor credit can run to 40% if the adverse credit type is severe.
What does the current market look like?
Generally speaking, the current minimum deposit amount is 10% of the property price, although, with the Government’s mortgage guarantee scheme, 5% deposits are coming back in more and more. On average, though, lenders are asking for 15% of the property value and deposits of 20% and 25% are still not uncommon.
So how much will I need?
According to the Office of National statistics (ONS) the average prices for properties in the regions are:
- North East – £154,913
- North West – £205,121
- Yorkshire and the Humber – £199,607
- East Midlands £240,329
- West Midlands – £240,528
- East of England – £343,900
- London – £523,666
- South East – £384,966
- South West – £313,834
It is clear, then that the amount of deposit will depend on the area and also the mortgage lender’s criteria, but some examples:
| Region | Average price | 5% deposit | 10% deposit | 15% deposit | 20% deposit |
| North East | £154,913 | £7,746 | £15,491 | £23,237 | £30,983 |
| North West | £205,121 | £10,256 | £20,512 | £30,768 | £41,024 |
| Yorkshire and Humber | £199,607 | £9,980 | £19,961 | £29,941 | £39,921 |
| East Midlands | £240,329 | £12,016 | £24,033 | £36,049 | £48,106 |
| West Midlands | £240,528 | £12,026 | £24,053 | £36,079 | £48,106 |
| East | £343,900 | £17,195 | £34,390 | £51,585 | £68,780 |
| London | £523,666 | £26,183 | £52,367 | £78,550 | £104,733 |
| South East | £384,966 | £19,248 | £38,497 | £57,745 | £76,993 |
| South West | £313,834 | £15,692 | £31,383 | £47,075 | £62,767 |
It is important to note that these are based on average selling prices and that the actual deposit requirements will be different for different property prices. It does, however, give a flavour of the large sums of money that will need to be saved. One final note is that, the larger the deposit, the better the mortgage deals that are available from an interest rate point of view, so it is worth saving that little bit more to try and get a better mortgage deal.
