Rent and Security Deposits. Paying rent is probably the simplest part of renting a house or apartment. The renter pays the rent according to these terms set in the rental agreement. Security deposits are not a part of the monthly rent. A security deposit is a set amount of money paid at the start of renting a place. If you’re looking to buy a property, the minimum deposit for a mortgage is usually 5% of the property’s value. But having a deposit of 15% or more could help you secure the best mortgage rates.
Deposit. It strikes fear into home buyers. It’s one of the most talked about parts of buying a house, and the years it takes to save it up are arguably the most difficult part of homebuying. And the biggest deposit question is: how much deposit do I need? Let’s take a look.
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0% deposit mortgages
House Deposit
Traditionally lenders have required a minimum deposit for a home loan of at least 20% of the house price in order to reduce the risk. So that house worth $600,000 would require a deposit of at least $120,000. The size of your deposit will make a massive difference to the mortgage deal you can find. A bigger deposit gives you more options and lower rates. Plus, the bigger your deposit, the smaller your loan.
Over a decade ago, you could get a variety of mortgages with absolutely no deposit at all. Right now though, these are few and far between.
The 0% deposit mortgages that do exist are usually guarantor mortgages.
These work by the homebuyer getting someone else – often parents or grandparents – to use their own property or savings as security to cover the deposit percentage.
Lenders have different rules around who can and cannot become a guarantor. Friends and even aunts or uncles for example are often not allowed.
Guarantor mortgages are quite risky, especially for the guarantors themselves. This is because if you can’t pay the mortgage, the guarantors are liable to pay it instead. It could lead to losing the home and the guarantors getting into serious financial problems.
Deposit amount needed for a mortgage
The amount of deposit you need for your mortgage is worked out as a percentage of the value of the house you’re buying. The mortgage is then based off what’s left – the amount you’re borrowing.
So, the largest mortgages you can get are 95% mortgages. This means you would need a deposit of 5% of the cost of the house you’re buying.
You can work this out by grabbing your smartphone and firing up the calculator. Get the house price, and multiply it by 0.05.
The average UK house price in June 2018 was £228,000 according to HM Land Registry.
This would mean the minimum deposit amount you would need for the average house in the UK is £11,400, because £228,000 x 0.05 = £11,400.
Find out more about saving up in our Saving money for a mortgage deposit guide
Recommended deposit for a mortgage
Because your mortgage is a loan, it attracts interest. Less interest means your mortgage is more manageable, keeping repayments under control and meaning you’ll have to spend on buying your house overall.
The mortgages with the best – the lowest – interest rates are only available when you have a large deposit. So, a 20% deposit will normally get you a mortgage with a lower interest than a mortgage that lets you have a 10% deposit.
Also, keep this in mind. A deposit of 15% and a deposit for 17% give you access to the same deals. You only get better deals by going up 5% more to 20%. There are no little steps – you open up better deals every time you hit these milestones, 10%, 15%, 20% and so on.
When you get a mortgage deposit of 20%, you really start to get attractive mortgages.
This means that the recommended minimum deposit size is 20% of the price of your new home. For the average home of £228,000, that’s £45,600. That’s because to work out a 20% deposit on a house, you multiply the price by 0.2.
So, £228,000 x 0.2 = £45,600.
Loan to value (LTV) explained
You’ll see the phrase ‘loan to value’ or the letters ‘LTV’ bandied around a lot in the mortgage world.
It’s a way of working out how much you’re borrowing compared to the total cost of the house. You should be aiming for a low LTV, around 80%
It’s worked out using percentages. It might sound complex, but it’s very similar to working out a deposit.
All you need is your house price, deposit amount, and the amount your mortgage is for. You can work your mortgage out by just subtracting your deposit from the house price. Then, divide your mortgage by your house price, and multiply by 100.
For example, taking our average house price of £228,000 and our recommended deposit for this house price of £45,600, you’ll have:
Mortgage is £228,000 - £45,600 = £182,400
Mortgage divided by house price is £182,400 / £228,000 = 0.8
Then just multiply by 100 to get the final percentage 0.8 x 100 = 80% LTV.
Remember, lower LTVs mean better interest rates, but also higher deposits.
You’ll need to know about LTVs when you remortgage your house as well, so it’s not just something for first-time buyers.
Help to Buy scheme deposits
With the Help to Buy scheme, you need a minimum of a 5% deposit. So, on the average house price of £228,000 that’s £11,400.
Help to Buy works differently to getting a normal mortgage.
Firstly, it’s only available on houses priced below £400,000 in England, below £600,000 in London, below £300,000 in Wales and below £230,000 in Scotland. There’s no scheme in Northern Ireland.
It’s also only available on new build properties.
The mortgage you get is for 75% of the LTV of the house. 20% is taken from an equity loan, with the final 5% taken from your deposit.
In London, the 20% equity loan be as high as 40%, so you’d get a 55% mortgage.
The equity loan is the special part of the Help to Buy scheme.
You don’t pay any interest or fees on it for the first five years. In the sixth year, you’ll be charged 1.75%.
After that, the fee rises by inflation based on the Retail Prices Index (RPI) plus 1% each year.
Find out more on our Help to Buy: Everything you need to know page.
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The term house deposit can be used to describe one of several types of deposits that a buyer or renter makes in order to secure housing for herself. If a person is buying a house, a house deposit usually signifies a down payment or a percentage of the home's price that is paid up front and not included in the mortgage. If someone is renting a house, a house deposit may refer to a security deposit, also known as a damage deposit or rental deposit, that is charged by the landlord before the tenant moves in.
Many mortgage lenders require a house deposit or down payment before issuing a mortgage. Some mortgage programs, however, either do not require a down payment or require a very small down payment. For example, in the United States, the federal housing administration (FHA) routinely guarantees mortgages in which the buyer pays as little as 3.5 percent of the home's sale price as a down payment. In some cases, it is possible for former service members to get a no-down payment Veterans Affairs (VA) mortgage as well. The purpose of a house deposit in these instances is to offer some protection to the mortgage lender so that the house has some equity to compensate the mortgage lender in case of foreclosure.
A house deposit that is paid when renting a house provides the landlord with some financial protection against a tenant skipping out on the rent or damaging the rental unit and not paying for repairs. A rental security deposit is often equal to one month's rent, though some landlords charge more than this. In the United States and many other countries, landlord-tenant law strictly governs the use and management of security deposits. For example, some laws limit the amount a landlord can charge for a security deposit. Laws also may require a landlord to keep a security deposit in a separate account and pay interest on the security deposit to tenants either on an annual basis or when the tenancy is terminated.
Home buyers can sometimes receive grants to assist them in paying a house deposit. The mortgage lender may also have rules that permit the home buyer to borrow the house deposit from another source. Landlords are often hesitant to rent a home to a tenant without some kind of security deposit, particularly in places where tenants have significant protection against eviction. It is, however, illegal in the United States and other countries for a landlord to demand security deposits in a discriminatory manner, such as requiring parents of small children to pay an extra deposit. A landlord may be able to require a larger security deposit from tenants who have bad credit histories or who have pets that may cause damage to the unit above what a normal security deposit could cover.