First-Time Buyer Deposit Guide

First-Time Buyer Deposit Guide

Saving for a home of your own is a big milestone and figuring out the deposit can feel like the hardest part. Our team at Mortgage Stop speaks to first-time buyers every day who are trying to work out how much they actually need, where the money can come from and what options are available to help them take that exciting first step onto the property ladder.

To help make things clear, Rohit Kohli has put together the answers to the questions we get asked most often. You will learn about how different deposit sizes affect your mortgage rates, the government schemes that can boost your savings, how gifted deposits work, and what to expect if you are using alternative sources like family help or builder contributions.

Whether you are wondering if you should wait to save more or how poor credit might affect your choices, we hope these answers give you a clear picture of what is possible. Our advisers are always here to chat through your plans whenever you are ready to take a closer look.

How much deposit do you actually need to buy your first home?

As of August 2026, for some people, the answer is zero. There are lenders out there offering 0% deposit mortgages, meaning you could potentially buy a property without a deposit. We also have lenders offering low deposit schemes where having £5k allows you to purchase a property up to £500k.

You have to meet strict lender criteria to qualify for these options. This means having an income that meets affordability and also having a very good credit history. Many people may not qualify because of these restrictions, so a 5% deposit is the normal realistic minimum.

The bigger your deposit, the better the rates you’re likely to get, as lenders typically offer lower rates to borrowers who put down more upfront. On the other hand, a smaller deposit means you’ll need to borrow more, which can lead to higher monthly payments and more interest. All of this is factored into the affordability calculator.

You’ll also need to budget for costs beyond your deposit, including solicitor fees, surveys, mortgage fees and moving costs. Crucially, people always forget an emergency fund that gives you some contingency should the unexpected happen.

For example, your boiler might stop working shortly after you move in, or you could discover an issue that needs fixing. Therefore having a contingency fund in place can help cover these unexpected expenses without putting additional pressure on your finances.

Can you buy a house with a 5% deposit, and what are the trade-offs?

Yes, you can buy a house to live in with a 5% deposit. The biggest trade-off you are really looking at is how much you are going to be paying for it.

A 95% mortgage is going to cost you more than a 90%, 85%, or 80% mortgage. Lenders tend to charge a higher interest rate the lower your deposit is, and you will also be borrowing that much more compared to having a bigger deposit.

It’s important to consider what the monthly payment would be with a lower deposit and whether this is affordable. This can then be weighed against what the monthly payment would be with a higher deposit.

It’s also worth looking at how much that offsets any savings you might make from a lower deposit. It is entirely possible to buy a property with a 5% deposit and even less, as we have discussed previously, but it might not be the better option if more funds are available to put towards a higher deposit.

What government schemes are available to help first-time buyers with their deposit?

The key scheme that is going to help you with your deposit is the Lifetime ISA, or LISA (Lifetime Individual Savings Account). There are changes proposed to this scheme coming in August 2026 if you have not already opened one, which could affect it in the future.

Currently, it gives a 25% government bonus on contributions of up to £4k a year, making a maximum £1k annual bonus. That LISA can only be used for buying your first home, or you can withdraw it without penalties after the age of 60 when you retire.

If you take it out before then or for any other reason, you will face a 25% penalty on the whole amount. You could end up losing money if you were to take it out for any other purpose.

Aside from that, there are Shared Ownership schemes where you can buy a percentage of a property and a housing association owns the rest. You pay rent on that other part of the property and have a mortgage on the part you have purchased.

There are also other schemes which are run independently, such as the First Home Scheme or Own New Scheme, which also provide assistance to first-time buyers. Additionally, there is talk of bringing the government-backed Help to Buy scheme back in the future.

Can you use a gifted deposit from family – and what do lenders need to see?

Gifted deposits are very common these days because it is tough to save up a deposit on your own. We are seeing a lot of people with family helping them, so parents, grandparents and siblings are stepping in much more often. The good news is that many lenders will happily accept gifts from direct family members.

Some lenders will even go slightly wider and accept gifts from non-related third parties, such as close friends. Because it needs to be a genuine gift, you will usually need to sign a gifted deposit letter. This document confirms the money is a gift rather than a loan and that the person gifting it has no rights to the property or to get the money back.

The person giving you the money also needs to confirm the amount, their relationship to you and that it does not need to be repaid. Some lenders will want to see the source of funds for the gift, but the core due diligence is handled by your solicitor during the legal work. Your gifter will need to provide ID and bank statements to help with these checks.

It is important to tell us or your adviser early if there is a gift involved so we can make sure the lender accepts the specific type of gift you are getting. If it comes to light halfway through the application, it can cause delays and create complications during the process. The earlier we know about it, the easier the whole process will be.

How does the size of your deposit affect the mortgage rates you’re offered?

The larger your deposit, the lower your loan-to-value, or LTV. A lower loan-to-value means the interest rate offered by lenders is likely to be more favourable.

Lenders typically change their loan-to-value amounts at specific increments. These usually start at 95% and go down through 90% and 85%, with 60% usually being the lowest.

Below that level, the rates do not really change. Between 60% and 100%, you will see differences in the interest rates being charged by lenders. This means that even a small increase in your deposit could potentially move you to the next loan-to-value band. This can give you a bit of a saving on the interest you are paying on your mortgage.

When we do the calculations to look at what your deposit looks like compared to the property value, you might be close to a threshold. For example, if you are at 90.05%, increasing that deposit slightly could get you to the 90% bracket, which might save you a little bit on your interest rate.

Can you use a Lifetime ISA or Help to Buy ISA to boost your deposit?

As we touched on this earlier, a Lifetime ISA can be used towards eligible first home purchases. If you contribute £4k a year, you can potentially receive a 25% bonus from the government, which gives you an extra £1k a year.

To use it for your home, there are a few conditions around it. The value of the property needs to be below a certain threshold, and the ISA must have been open for at least 12 months from your first payment. You also need to be buying with a mortgage.

Your solicitor or conveyancer will arrange for the funds to be released. It is advisable not to close the account down until they have all the paperwork and handle the process for you.

If you have not opened one already and you are under 40, it is a really good idea to open one.

There are changes coming to the scheme as of August 2026, so you should think about getting yourself a Lifetime ISA. Even if you just put £1 in it for now, at least you have the option to utilise this in the future.

Help to Buy ISAs cannot be opened anymore. If you already have one, you can continue paying into it until 2029, before the scheme closes in 2030.

One key thing to remember is that if you have both a Lifetime ISA and a Help to Buy ISA, you cannot claim both bonuses. It is strictly one or the other.

What counts as a deposit source that lenders will accept – can you use an inheritance or savings?

There are many different sources you can use for a deposit. Personal savings built up over a number of years are a common option, though lenders will usually want to see bank statements to show where the money has come from. You can also use your Lifetime ISA.

Gifts from a family member or, in some cases, a friend can be used. Any inheritance you have received is also acceptable, though we may need legal paperwork to demonstrate the origin of those funds.

You might use proceeds from selling investments or other assets, a work bonus, or equity in your property. Builder incentives, such as a 5% deposit contribution, can be used provided they are capped at that level.

In certain circumstances and depending on affordability, some lenders will accept a personal loan towards a deposit contribution. However, they will factor that loan into your overall financial position, which means you might have to borrow less than you originally wanted. Every deposit source requires a specific level of due diligence to verify where the funds have come from.

Is it worth waiting to save a bigger deposit, or should you buy as soon as you can?

There is no right or wrong answer to this, and I cannot say whether a bigger deposit or buying now is better for you. It entirely depends on your personal circumstances, what you are trying to achieve, your budget and what you plan to do. You have to compare the financial benefit of waiting against the cost of waiting.

Holding off to build a larger deposit might help you move into a lower loan-to-value bracket. However, interest rates could rise during that time, which could offset those benefits. In the meantime, you might also be paying rent, which could increase and eat into the capital you are trying to save.

Property prices could also increase, making it more expensive to buy. This could mean that you end up needing an even bigger deposit.

This is why it is worth talking to an adviser early to get your plan together, rather than leaving it until the day before you view a property. Ideally, you should speak to someone about a year before you plan to move. They will work with you to look at your options, crunch the numbers, and get you ready for your mortgage.