Why do mortgage companies demand such huge deposits?

[SpeedyGonzalez]

I mean, is there a reasonable 'why' as opposed to an exploitative 'why' - i.e. that they want lots of your lovely money to fritter away on slot machines?

Supposing you're paying £1000 pcm rent and want a mortgage which will cost you £700 pcm. Assuming also that you're young enough for a 25-yr mortgage and tick all the other boxes. Your rental history shows that you can clearly easily afford this and still have change left to buy ice-creams for everyone, yet this is not enough without a whopping great deposit as well. Why? I don't disagree with the principle of a deposit; it's the size of it that I don't understand. Is there something crucial that I'm missing?

they want you to have some equity in the property, this ties you into it more and makes it harder for you to default on the loan and walk away.
it also protects the lender against falls in the property value - as your equity takes the hit.

"They" (assuming you mean the mortgage company) don't get any of your deposit to fritter away on slot machines, should they want to - it goes to the person you buy the house from.

What ChasingSquirrels said. The more equity you own, the less the risk to the mortgage company. I've been a homeowner for 4 years and bought a house at around 98.5% of its value. My mortgage currently reflects 80% of its value but some lenders still won't look at me for a remortgage because in their eyes the loan to value ratio is too risky.

5 years ago they were handing out 110% mortgages (think Northern Rock) and look what happened - banks are scared of that now, and higher equity protects them against drops in property values.

Daisymoo - it's been so long since I last bought/ sold a property that I don't remember how it works; don't they get a few days within which to play with the deposit?

Chasing/ OE - yes, that makes sense to me.

deposit doesn't go to the mortgage company, it goes to the solicitor who pays it over to the vendor (or rather to the vendors solicitor who in most cases uses it as part of their deposit).

Ah, yes, that's how it works. Of course.

Right, then. As you were.