Traditionally, the minimum deposit for a mortgage was 5%. This gave homeowners a LTV ratio of 95%. For a house worth £70,000 this would require a deposit of £3,500. In recent years there was an increase in popularity of 100% mortgages and even 125% mortgages. However, with the credit crunch making mortgage lenders more nervous, bank lenders have been requiring a larger mortgage deposit.

The Advantages of a large Mortgage deposit include:

Protection against negative Equity. With house prices predicted to fall in the UK, a small deposit could leave homeowners vulnerable to negative equity. Suppose you bought a house for £100,000 with a deposit of 5% and a mortgage worth £95,000. If house prices fell 12%, your mortgage would be worth £95,000 but the value of the house would be £88,000. Therefore, if you had to sell the house then you would still owe £7,000 to the mortgage company. This is one reason why banks are currently wanting bigger mortgages; they fear that the combination of the credit crunch and falling prices could lead to negative equity and potentially they could lose out on home repossessions.

Lower Interest Rates If you can save a deposit of 25%, you are likely to get a much lower interest rate on the mortgage. If you can only save the bare minimum, many banks are currently charging a premium to insulate themselves against the prospect of falling prices.

The difficulty is that saving a large deposit is easier said than done. These are some tips on saving for a mortgage