How do deposits work on mortgages

This stands for loan-to-value, and means the percentage of the property price that will be covered by the mortgage. This is where a family member takes on some of the risk of your loan by offering their home or savings as security in the event that you don't make your mortgage repayments.

There are very few of these deals, and they carry a significant risk of negative equity — when you owe more on your mortgage than your property is worth — so you and your family should take professional advice before applying. But as with residential mortgages, the higher the deposit, the better the deal you're likely to get. Lenders ask for a higher deposit because buy-to-let properties are deemed a riskier investment. As you won't be living there yourself and will likely need rent from tenants in order to keep up with your repayments, there's more that could go wrong.

While other kinds of deposits — such as a damage deposit for a holiday home — might be returned to you, this isn't how property deposits work. Instead, you're paying a small portion of the overall price and the mortgage provider is lending you the rest. Then, over time, you gradually pay back the mortgage lender.

You won't get the deposit back once you've bought the house or if you move, but as you've used it to buy a percentage of the house, you essentially keep it as equity. While you need to prove to your mortgage lender that you have the funds saved, you actually pay the deposit to your conveyancer at the point of exchanging contracts. Once the contracts have been signed and the mortgage has completed, your deposit will go to the seller, along with the money from your lender covering the rest of the property value.

Lenders will ask how you've come up with the money for your deposit, and will usually state that it needs to be from a 'non-refundable' source — ie your own savings or a gift from a family member — rather than a loan. However, loans repayable upon the sale of the property might be OK with some lenders.

This might be the case if your parents or a friend has loaned you some money for your deposit. Even if you're taking out a loan that's repayable on a monthly basis, some lenders might accept it, but they'll factor it in to how much they will lend.

So, if you've taken out a loan for your deposit, it's likely you'll be able to borrow less than if you paid from your own savings. Yes, but there are certain procedures that need to be followed, such as providing a letter confirming that the money won't need to be repaid.

Some lenders might also limit the percentage of your deposit that can come from a family member. Quite possibly. When you're applying for a mortgage , lenders will take your deposit and salary into account, but they'll also use your credit history as part of their assessment of whether you're likely to be able to pay back a large loan. If your credit history shows that you've failed to keep up with other loan repayments, defaulted on bills or faced County Court Judgements CCJs , some lenders won't lend to you.

Other lenders will still consider you for a mortgage, but it's likely that you'll have to prove you've kept up with repayments for a certain amount of time, and the most competitive rates and higher LTVs might not be an option. Financial Services Limited. Financial Services Limited is a wholly-owned subsidiary of Which?

Limited and part of the Which? Money Compare is a trading name of Which? Money Compare content is hosted by Which? Limited on behalf of Which? Mortgage calculators. Compare Mortgages. In this article. Deposits vary across the country and national averages can change. In the South, especially around London, house prices tend to be more expensive so you might need more money for your deposit.

It helps to put down as much as you can comfortably afford as part of your deposit. The value of the deposit you put down depends on the value of the property and how much you can afford as a lump sum. You only take out a mortgage for the part of the property you own, so the deposit could be smaller. For impartial financial advice, we recommend government bodies like the MoneyHelper. You can talk to us over the phone or use our mortgage video service from the comfort of your own home.

Lloyds Bank plc. Registered in England and Wales No. Lloyds Bank plc is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority under registration number What is a mortgage? Last updated: Apr Mortgage interest rates explained Last updated: Nov How much deposit do you need for a mortgage? Last updated: Sep How to save for a mortgage deposit Last updated: Apr A-Z mortgages jargon-buster Last updated: Jul Calculate mortgage costs.

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