Deposits and Loan-to-Value: How Your Deposit Shapes Your Mortgage
The bigger your deposit, the smaller the share of the property you borrow. Lenders price that risk, so a few percentage points can change your options.
What to know
- Loan-to-value (LTV) is the mortgage as a percentage of the property’s value.
- Lenders price mortgages in LTV bands, so moving into a lower band can mean a better rate.
- Small-deposit mortgages are available but cost more and carry a higher risk of negative equity.
- Gifted deposits are common, but lenders need to know about them and usually ask for a gift letter.
Your deposit is the part of the purchase price you pay yourself. The rest is borrowed, and lenders measure that borrowing as a percentage of the property’s value: the loan-to-value, or LTV.
How loan-to-value works
LTV = mortgage ÷ property value × 100.
If you buy a £250,000 home with a £25,000 deposit, you borrow £225,000. That’s an LTV of 90%.
| Deposit on a £250,000 home | Mortgage | LTV |
|---|---|---|
| £12,500 (5%) | £237,500 | 95% |
| £25,000 (10%) | £225,000 | 90% |
| £37,500 (15%) | £212,500 | 85% |
| £62,500 (25%) | £187,500 | 75% |
| £100,000 (40%) | £150,000 | 60% |
Why lenders care
A lower LTV gives the lender more of a cushion if property prices fall or the loan isn’t repaid. Lenders reflect that in pricing: rates are usually set in bands, often at steps such as 60%, 75%, 85%, 90% and 95%. Moving into a lower band can lower your rate and widen your choice of deals.
Handy tip
If your LTV sits just above a band, say 76%, check whether a slightly bigger deposit would bring it to 75%. The rate difference can outweigh the extra cash, but keep enough savings for moving costs and emergencies.
Small-deposit mortgages
Mortgages at 90% and 95% LTV help people buy sooner, but they come with trade-offs:
- higher interest rates than at lower LTVs
- fewer deals to choose from
- a greater risk of negative equity, where your home is worth less than your mortgage, which can make it harder to move or remortgage
Where deposits come from
- Savings: the most common source.
- Gifts: usually from family. Lenders want confirmation that the money is a gift, not a loan.
- Lifetime ISA: first-time buyers can use it for a home costing up to £450,000, with the government bonus included.
First-time buyers in England and Northern Ireland also pay no Stamp Duty Land Tax on the first £300,000 of a home costing up to £500,000, which leaves more cash for the deposit.
Good to know
Remember the other costs of buying: legal fees, surveys, any mortgage product fees and moving costs. Budget for these before deciding how much to put down.
Deciding how much to put down
Your LTV keeps changing after you buy. As you repay the mortgage, and if prices rise, your LTV falls, which can open up better rates when you remortgage or switch deals. If you’re still saving, our guide to how lenders assess affordability explains the other half of the calculation.
Your questions
What is the minimum deposit for a mortgage?
Some lenders offer mortgages with a 5% deposit, though the choice is narrower and rates are usually higher than at lower loan-to-value levels.
Can family give me money for a deposit?
Yes, many lenders accept gifted deposits. They usually require a signed letter confirming it’s a gift that doesn’t need to be repaid.
Can I use a Lifetime ISA for my deposit?
Yes, if you’re a first-time buyer and the home costs £450,000 or less. Other withdrawals generally carry a 25% charge.
This guide explains how UK borrowing works in general terms and isn’t financial advice. Rates, rules and lender criteria change, so check the details with the lender, GOV.UK or the Financial Conduct Authority before you decide. For advice on your own circumstances, speak to an FCA-authorised mortgage or financial adviser. If you borrow against your home, it may be repossessed if you do not keep up repayments.
