first time buyer looking for a mortgage deal (1)

Will Saving More Than 10% Deposit Improve My Mortgage Options?

Saving for a deposit is often one of the biggest challenges when you are a first time buyer looking for a mortgage deal. Many buyers focus on reaching the 10 per cent deposit threshold, usually the minimum required to get an application approved. 

However, you might wonder whether saving more could provide additional benefits when applying for a mortgage. The simple answer is that a larger deposit can often improve your mortgage options.

But the exact impact will depend on your circumstances, the property you’re buying and the products available at the time. Here’s what to know. 

How does your deposit affect a mortgage application?

Your deposit directly influences your loan-to-value (LTV) ratio. Loan-to-value is the percentage of a property’s value that you need to borrow from a lender. For example:

  • Property value: £250,000
  • Deposit: £25,000
  • Mortgage required: £225,000
  • Loan-to-value: 90 per cent

 

If you increase your deposit to £50,000, the mortgage required falls to £200,000 and the LTV reduces to 80 per cent. Generally speaking, lenders view lower LTV borrowing as lower risk because the borrower has more equity in the property from the outset.

Can a larger deposit give you access to more mortgage products?

In many cases, yes. Mortgage products are often grouped into LTV bands such as:

  • 95 per cent LTV
  • 90 per cent LTV
  • 85 per cent LTV
  • 80 per cent LTV
  • 75 per cent LTV
  • 60 per cent LTV

 

As your deposit increases and your LTV falls, you may gain access to a wider range of mortgage products. Some lenders reserve their most competitive deals for borrowers with larger deposits.

This doesn’t mean every borrower with a bigger deposit will automatically secure the lowest available rate, but it can increase the number of options available.

Could you benefit from a lower interest rate?

Potentially. Lenders may offer more competitive interest rates at lower LTV levels because they are taking on less risk. 

Even a small reduction in your mortgage rate can make a significant difference to monthly payments and the total amount of interest paid over the term of the mortgage.

For this reason, some buyers choose to delay their purchase slightly if they are close to reaching the next LTV threshold.

However, it’s important to balance this against factors such as house price changes, personal circumstances and how long it may take to save the additional funds.

Are there benefits beyond mortgage rates?

A larger deposit can also provide greater flexibility during the application process.

For example, it may:

  • Increase the choice of lenders willing to consider your application
  • Reduce monthly mortgage payments
  • Lower the total borrowing required
  • Improve affordability calculations
  • Provide more equity from day one

 

Having a larger deposit may also offer reassurance if property prices fluctuate in the future.

Is saving more always the right decision?

Not necessarily. While a larger deposit can improve your options, waiting to save additional funds isn’t always the best route for every buyer. Property prices, mortgage rates and personal circumstances can all change over time.

The right decision depends on your individual goals, finances and timescales. Speak to a mortgage adviser before making your decision.