How Much Deposit Does a First Time Buyer Need in Scotland?

How the deposit and loan to value actually work

Your deposit is the part of the purchase you fund yourself. The mortgage covers the rest, and the relationship between the two is expressed as loan to value — the loan as a percentage of the property value. Borrow £180,000 against a £200,000 property and you are at 90% loan to value, with a 10% deposit.

Lenders price in bands, and the bands are what make the deposit worth stretching for. Moving from 95% to 90%, or from 90% to 85%, usually opens a better rate rather than simply reducing the amount you owe. A few thousand pounds that takes you over a band boundary can be worth more than the same money spread across the term.

Five per cent deposits do exist in the Scottish market, but availability, criteria and pricing vary between lenders and change over time. Nobody can promise you a particular loan to value in advance, and a guide that does is guessing.

The figure that catches people out: price versus Home Report valuation

This is the single biggest difference between buying in Scotland and buying elsewhere in the UK, and it is where first-time buyers most often come unstuck.

A lender does not lend a percentage of what you agreed to pay. It lends a percentage of the valuation, or the purchase price, whichever is lower. In Scotland the Home Report gives you the surveyor's valuation before you offer, so unlike buyers south of the border you can see that figure in advance — which is genuinely useful, provided you act on it.

Where a property attracts competition and you offer above the Home Report valuation, the amount above valuation is not borrowable. It has to come from your own funds, on top of your deposit. That is not a lender being awkward; it is the same rule applied consistently.

Because this decides how much cash you actually need, it is worth understanding properly before you bid. We have set out the arithmetic, with worked figures, in a separate guide on Home Report value and offers over.

Gifted deposits

A gift from a close family member is common and generally acceptable to lenders, but it has to be a genuine gift rather than a loan. Lenders will normally ask the person giving it to confirm in writing that the money is not repayable and that they retain no interest in the property. Your solicitor will also need to satisfy anti-money-laundering requirements on where the funds came from.

Who counts as an acceptable donor varies. Parents and grandparents are widely accepted; wider family, friends and employers less consistently. If your deposit is coming from someone outside the immediate family, it is worth establishing that early rather than at application.

Builder incentives on a new build

New build purchases often come with incentives — a deposit contribution, paid legal fees, flooring, or white goods. These are legitimate, but lenders treat them carefully because an incentive affects what the property is really worth.

Most lenders cap the total value of incentives as a percentage of the purchase price, and require them to be disclosed on the standard form the developer completes for the lender. Undisclosed incentives are the problem, not incentives themselves. Tell your adviser what is being offered at the point it is offered.

A new build that has never been occupied is also exempt from the Home Report requirement, so the lender's own valuation carries more weight than it would on a resale property.

The cash you need that is not the deposit

Budgeting only for the deposit is the most common planning error we see. The other costs are real, and most of them are payable before or at settlement rather than afterwards.

• LBTT,Land and Buildings Transaction Tax. First time buyer relief raises the nil rate band from £145,000 to £175,000, which is worth up to £600 if you qualify and claim it on your return. Above £175,000 there is usually tax to pay.
• Legal fees and outlays,Your solicitor's fee, plus registration dues and searches. Ask for an estimate in writing early; they vary.
• Any amount above the Home Report valuation,Payable in cash, on top of the deposit, as set out above.
• Mortgage product fees,Some products carry an arrangement fee. It can sometimes be added to the loan, which costs more overall.
• Moving and immediate repairs,Removals, and anything the Home Report flags that you intend to deal with straight away.

Help schemes can bridge part of the gap. The Scottish Government First Homes Fund can contribute up to £10,000 towards a home worth up to £300,000, and the LIFT shared equity scheme takes a larger share for people who qualify. Both have their own conditions, and we have covered each in detail on its own page rather than summarising them loosely here.

An illustrative example

Figures are rounded and illustrative only. They are not a quotation, and they do not indicate what any lender would agree.

• The assumptions,A property with a Home Report valuation of £180,000, an accepted offer of £186,000, and a 10% deposit.
• What the lender works from,The lower of price and valuation — £180,000.
• Deposit at 10%,£18,000.
• Mortgage,£162,000, which is 90% of £180,000.
• The amount above valuation,£6,000, payable from your own funds.
• Cash needed before other costs,£24,000 — the £18,000 deposit plus the £6,000 gap.

Add LBTT, legal fees and moving costs on top, and the difference between the headline deposit figure and the money you actually need is substantial. Working it out before you offer is the whole point.

Where to start

The useful first step is not choosing a lender. It is establishing what you can borrow, on your income and circumstances, and what deposit that implies for the sort of property you are looking at. That gives you a realistic price range and a cash target, and it takes one conversation.

Common questions