Yes, you can absolutely get a mortgage with a 10% deposit. This type of mortgage is commonly known as a 90% Loan-to-Value (LTV) mortgage, meaning you borrow 90% of the property's value and contribute the remaining 10% as your deposit.
Understanding 90% Loan-to-Value (LTV) Mortgages
A 90% LTV mortgage is designed for individuals who have saved a significant, but not necessarily very large, deposit. When you put down a 10% mortgage deposit, the amount you need to borrow from the lender constitutes 90% of the property's purchase price or its valuation if remortgaging.
For example, if you're looking to buy a property valued at £200,000:
- Your Deposit: £20,000 (10% of £200,000)
- Mortgage Amount: £180,000 (90% of £200,000)
This table illustrates the relationship between your deposit and the Loan-to-Value ratio:
| Your Deposit (as % of property value) | Loan-to-Value (LTV) Ratio |
|---|---|
| 5% | 95% |
| 10% | 90% |
| 15% | 85% |
| 20% | 80% |
Key Considerations for a 10% Deposit Mortgage
While a 10% deposit makes homeownership more accessible, there are several important factors lenders consider, and some implications for you as a borrower.
Affordability Checks
Lenders will rigorously assess your financial situation to ensure you can comfortably afford the monthly mortgage repayments. This includes reviewing your income, outgoings, existing debts, and employment stability.
- Income: Lenders typically look at your gross annual income, and some may allow you to borrow 4 to 5 times your salary, though this varies.
- Outgoings: All your regular expenses, such as utility bills, loan repayments, credit card debts, and even subscriptions, will be taken into account.
- Debt-to-Income Ratio: This metric compares your monthly debt payments to your gross monthly income, indicating your capacity to take on more debt.
For more information on mortgage affordability, you can consult resources like the MoneyHelper website: Understanding Mortgage Affordability.
Credit Score Importance
A strong credit history and a good credit score are crucial when applying for any mortgage, especially with a 10% deposit, as lenders may perceive a slightly higher risk with lower deposits.
- Payment History: Consistent on-time payments for bills and credit are vital.
- Credit Utilisation: Keeping your credit card balances low relative to your limits is beneficial.
- Credit Report Errors: Regularly checking your credit report for inaccuracies is recommended.
You can check your credit score and report through reputable credit reference agencies like Experian.
Interest Rates and Repayments
Mortgages with higher LTVs (like 90%) sometimes come with slightly higher interest rates compared to those with larger deposits (e.g., 20% or 25%). This is because a smaller deposit means the lender is taking on more risk.
- Higher Monthly Payments: A higher interest rate and a larger loan amount (due to the smaller deposit) can result in higher monthly repayments.
- Total Cost: Over the full term of the mortgage, even a small difference in the interest rate can significantly impact the total amount you repay.
Property Valuation
The lender will conduct a valuation of the property you intend to purchase to ensure its market value supports the loan amount. If the valuation comes in lower than the agreed purchase price, this can impact the LTV and, consequently, the mortgage offer.
How to Apply for a Mortgage with a 10% Deposit
The process for applying for a 90% LTV mortgage is similar to any other mortgage application:
- Check Your Credit Score: Ensure your credit report is healthy and accurate.
- Assess Your Affordability: Use online calculators and your own budgeting to understand what you can realistically afford.
- Gather Documents: Prepare essential documents such as proof of identity, address, income (payslips, tax returns), bank statements, and details of existing debts.
- Seek Mortgage Advice: Consider consulting a mortgage broker who can help you compare different 90% LTV products from various lenders and guide you through the application process.
- Get a Mortgage in Principle: Obtain a Mortgage in Principle (MIP) or Agreement in Principle (AIP) which is an estimate of how much a lender might lend you. This shows sellers you are a serious buyer.
- Find a Property: Once you have an MIP, you can confidently search for a property within your budget.
- Submit Full Application: After finding a property and having an offer accepted, you'll submit your full mortgage application.
While a 10% deposit requires careful financial planning and a strong application, it is a very common and viable route to homeownership for many first-time buyers and those looking to move.
