The Deposit Decision: What It Really Costs You
You've got £15,000 saved. The kind of house you want is around £300,000. So do you buy now with a 5% deposit, or keep renting for another year or two and save up to 10% or 15%?
A bigger deposit gets you a cheaper rate and a smaller mortgage. A smaller one gets you in sooner. Both cost you something, so it helps to see the numbers side by side over the period that matters most: your first fixed rate deal.
The Deposit Size Breakdown
Here's what each deposit looks like on a £300,000 home. LTV means loan to value: how much of the price you're borrowing.
| Deposit % | Deposit Amount | Mortgage Amount | LTV Ratio |
|---|---|---|---|
| 5% | £15,000 | £285,000 | 95% |
| 10% | £30,000 | £270,000 | 90% |
| 15% | £45,000 | £255,000 | 85% |
| 20% | £60,000 | £240,000 | 80% |
Lenders price their deals in LTV bands, usually in 5% steps at the top end: 95%, 90%, 85%, 80%. Drop into a lower band and you'll usually get a lower rate.
Mortgage Insurance (LMI): Do You Pay It in the UK?
If you've read Australian or American advice, you'll have come across lenders mortgage insurance (LMI). Buyers there with small deposits often pay a big premium to protect the lender. That isn't how it normally works here. On a standard UK residential mortgage you won't usually pay a separate insurance premium for borrowing 90% or 95%. Lenders build the extra risk into the rate instead.
Under the government's mortgage guarantee scheme, it's the lender that buys a guarantee covering part of its loss if a 95% mortgage ends in repossession. It protects the lender, and you don't pay for it as a separate charge.
Some lenders have charged a one off higher lending charge, also called a mortgage indemnity guarantee, on bigger loans. If yours wants one, it will be listed with the fees on your mortgage illustration, so read that section before you commit. Our guide to mortgage fees covers the usual ones.
Interest Rate Premium: Where the Cost Really Sits
A 5% deposit leaves less cushion if prices fall, so lenders charge more for it. How big the gap between bands is changes all the time. Sometimes 95% and 90% deals are close, sometimes there's a real jump. Rather than quote rates that would be out of date next week, the example below uses round illustrative rates.
The Real Cost: A Worked Example Over a Five Year Fix
Same £300,000 home. Repayment mortgage over 30 years. A five year fixed rate, with these example rates: 5.5% at 95%, 5.2% at 90%, 5.0% at 85% and 4.8% at 80%. We've left arrangement fees out and assumed they're the same on each deal.
| Over the 5 year fix | 5% Deposit | 10% Deposit | 15% Deposit | 20% Deposit |
|---|---|---|---|---|
| Mortgage | £285,000 | £270,000 | £255,000 | £240,000 |
| Example rate | 5.5% | 5.2% | 5.0% | 4.8% |
| Monthly payment | £1,618 | £1,483 | £1,369 | £1,259 |
| Total paid in 5 years | £97,092 | £88,956 | £82,134 | £75,552 |
| Of which interest | £75,605 | £67,588 | £61,297 | £55,308 |
| Mortgage left after 5 years | £263,513 | £248,633 | £234,163 | £219,756 |
| LTV after 5 years (if the price hasn't moved) | 88% | 83% | 78% | 73% |
On these numbers, going from 5% to 10% saves you about £136 a month and around £8,000 in interest over the five years. Roughly half of that is just borrowing £15,000 less. The other half is the better rate. Each step after that saves a bit less: about £114 a month from 10% to 15%, and £110 from 15% to 20%.
Look at the bottom row too. After five years the 5% buyer still owes about 88% of the price, so their next deal will probably be priced in the 90% band. Unless the house goes up in value, the extra cost carries on past the first fix.
By the way, if those rates held for all 30 years, which they won't, the gap in total interest between a 5% and 20% deposit would be around £84,000. Scary, but built on rates nobody can predict. Plan around the five year figure.
Is a Smaller Deposit Worth It?
Honestly, it depends. The table doesn't show the rent you pay while you save, or what prices do meanwhile.
A Smaller Deposit Can Make Sense If:
- Saving the extra would take years, and your rent is close to the mortgage payment anyway
- The 95% payment fits your budget with room to spare, and your income is steady
- Local prices are rising faster than you can save
Saving for a Larger Deposit Makes Sense If:
- You're only a few months from the next band, say 9% heading for 10%
- The 95% payment would stretch you, or leave you with no savings at all
- Prices where you're looking are flat or falling
The rate changes at the band, not in between. A 9% deposit is normally priced as a 95% mortgage, the same as 5%. If you're close to the next band, a few more months of saving can be well worth it. If you're nowhere near, waiting gains you less than people think.
If family want to help, a gift can push you into a lower band. Many lenders accept gifted deposits, usually from close family, with a letter confirming it's a gift and not a loan. Our gifted deposit letter guide explains what goes in it.
Overpayments: Getting Into a Cheaper Band Later
If you do buy with 5%, overpaying during your fix brings your LTV down faster, so your next deal is cheaper. In the example, the 5% buyer owes about 88% of the price after five years. Overpay £200 a month and that drops to about 83%, which puts the next deal in the 85% band instead of 90%. That assumes the price stays put. If it rises you'll move down the bands quicker. If it falls, slower.
Most fixed rate deals let you overpay a set amount each year without an early repayment charge, so check the limit on yours. Our overpayment calculator shows what different amounts do. Only use money you won't need, because you can't easily get it back out.
Lender Availability by Deposit Size
The smaller your deposit, the fewer deals you'll have to choose from. Plenty of lenders do 95% mortgages, but not all, and not on every property. Some cap new build flats at a lower LTV, so a 5% deposit can rule out certain homes even when the lender is happy with you. Lenders also tend to look harder at your credit file and affordability at 95%.
So it's worth a broker looking at a 95% case before you apply. Going to the right lender first beats being turned down and starting again.
First-Time Buyer Help: Government Support
A few things can help with a small deposit, or help you build a bigger one:
- The government's permanent mortgage guarantee scheme, often called Freedom to Buy, backs lenders offering 91% to 95% mortgages to first-time buyers and movers, on homes up to £600,000. Here's our Freedom to Buy guide.
- A Lifetime ISA adds a 25% government bonus to up to £4,000 a year of savings, for homes costing £450,000 or less. You must open it and pay in before you're 40. The October 2026 Budget said a new First Time Buyer ISA will replace it for new savers from April 2029.
- Shared ownership lets you buy a share of a home, between 10% and 75%, and pay rent on the rest. The deposit is based on your share, not the full price.
- Your First Home is a new equity loan scheme for first-time buyers of new builds in England, with a deposit from 2.5%. It was confirmed at the 28 October 2026 Budget but isn't open yet. Applications are expected from February 2027.
The old Help to Buy equity loan closed to new applications in October 2022, so ignore anything suggesting you can still apply. For everything in one place, see our First-Time Buyer Schemes Guide.
Run Your Own Numbers
Our calculators let you try different deposits, rates and terms, so you can see what the next band would save you.
Use Calculators →The Short Version
- UK buyers don't normally pay mortgage insurance for a small deposit. The cost shows up in the rate instead.
- Compare deposits over your fixed rate period, not 30 years of guessed rates.
- The rate changes at the band edges, so check how close you are to the next one.
- A 5% deposit gets you in sooner. It also tends to cost you more on the next deal.
Important: This article is for general information and educational purposes only. It does not constitute financial advice. Interest rates, fees and lender criteria vary and change often. The examples in this article are illustrative only and use round example rates, not any lender's current rates. This article was last checked in October 2026. Your actual costs will depend on your specific circumstances, credit profile, and market conditions. Before making decisions about deposit sizes or mortgages, speak to a qualified financial adviser. For personalised mortgage guidance, contact DS Financial (Appointed Representatives of Stonebridge Mortgage Solutions Ltd, FCA Firm Ref: 835094, info@dsfinancial.co.uk or 0330 22 333 10).