For many people, saving up for a deposit is often the most challenging part of buying a property, especially if you're a first-time buyer. Saving a large deposit will give you the best chance of being offered a competitive first-time buyer mortgage rate with agreeable terms. If you’re struggling to save up enough for a deposit and this is making it difficult to buy your first home, keep reading for all the information you need to help you understand how to save for a home deposit.
The Topics Covered in this Article Are Listed Below:
How Much to Save for a House Deposit
How much you need to save for a house deposit will largely depend on the value of the property you wish to purchase. Mortgages are typically available for up to 95% of the property's value. This means you can purchase a home with a deposit of 5% of the property price, with a bank or building society providing a mortgage loan to cover the rest.
The income you have will affect the size of the mortgage the lender will offer you in most cases. If you're on a low income, you may need a deposit of more than 5% to buy the home you want. Mortgages with the lowest and the best interest rates are also only available to those with a large mortgage deposit - for example, 20%.
Here's how much money you'll need to put down if you're looking to purchase a £200,000 property, based on different deposit percentages.
- 5% deposit: £10,000
- 10% deposit: £20,000
- 15% deposit: £30,000
- 20% deposit: £40,000
To help you work out how much you need to save for a mortgage deposit, look at typical property prices in your chosen area and calculate how much you deposit to put down at least 5% of the asking price. You’ll also need to think about how much you can afford in mortgage repayments and interest payments each month as this will affect how much you can borrow from a lender. Once you know how much you can borrow, you can work out how much you’d need in deposit for your desired LTV (loan-to-value). Find out how to buy your first home with a small mortgage deposit.
Other Costs to Consider
While your focus might be on how to save for a mortgage deposit, there are other costs and fees that you'll need to budget for.
These include:
- Removal costs: around £2,000 but depends on what and how much you’re moving
- Mortgage Valuation: around £250
- Mortgage Survey: between £400 and £700
- Arrangement fee: up to £2,500
- Conveyancing: between £500 and £1,500
- Broker fee: up to £500
- Land registry: up to £500
Stamp Duty: cost depends on property price and if you're a first-time buyer (SDLT for First Time Buyers).
How to Save for a House Deposit UK
Once you've worked out how much you need to save, you need to determine how to save up for a mortgage deposit and where you'll put the money you've saved in the meantime. There are a number of options.
Make Your Savings Work Harder
If you’ll be saving for a long time, it's a good idea to consider how much interest you could earn on the money. Instant access savings accounts are convenient but typically offer lower interest. If you aren't accessing the money for a few months or even years, you might consider a longer term savings account such as a Lifetime ISA (LISA). These are designed for first-time buyers aged between 18 and 40. You can deposit up to £4,000 a year into it until you are 50. The Government will also add a 25% bonus to your savings of up to £1,000 a year.
Reducing Your Outgoings
A quick and often very effective way of saving money is to reduce your outgoing expenses. Some options include:
- Cancelling any unused subscriptions - such as newspapers, magazines, TV and music streaming, gyms and clubs
- Shopping around for cheaper broadband and mobile phone offers
- Switching your energy bills to cheaper tariffs
- Checking you're on the correct Council Tax band
- Cutting down on optional expenditures - such as daily coffees or meals out
Earn Money on the Things You Buy
Use loyalty cards on purchases and consider getting a cashback credit card that allows you to earn a percentage of what you spend as a credit on your bill. Use this when you can for everyday spending to get the most out of using a cashback card. But be sure to pay off the balance in full each month. Spending responsibly with a credit card can also help improve your credit score, which is important when applying for a mortgage.
Make Extra Money
Increasing your income by taking on extra hours at work, freelancing in your spare time or even just selling things you no longer need can be an effective way to boost savings. However, keep in mind that you may be required to submit a self-assessment tax return and pay tax on the extra money you've made.
How to Save for a Deposit While Renting
Saving for a deposit can be challenging when paying rent each month. Getting a flatmate for the spare room can help you increase savings by splitting costs. However, you'll need to check whether you can do this with the landlord first. There's also the option of moving somewhere smaller and cheaper. Just make sure it won't increase the cost of your commute. Another option proving popular is to move back in with your parents. Assuming that you'll be spending less on rent, food and bills, this could save you hundreds each month and help you reach your deposit goal much sooner.
How Long Will It Take to Save for a Deposit?
How long it will take to save the amount you need in deposit will depend on your income, how much you save each month and your location. The average first-time buyer in the UK takes more than 6 and a half years to save for a mortgage deposit. However, in the North East, it can take just over 4 years on average to save a 15% deposit. In London, it may take up to 11 years.
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What to Do While You Save for a Deposit
While you're saving for a mortgage deposit, there are other things you can do to boost the chances of getting your mortgage application approved when it's time to apply.
For example:
- Be in long term employment with a regular income or be self-employed for a minimum of 1 year
- Be on the electoral register
- Have a good credit history
- Have all your paperwork ready
It’s still possible to get a mortgage if you've got adverse credit. You may just find it more difficult to get a competitive rate and will likely need to put up a bigger deposit.
What Can You Do if You Can't Save a Big Enough Deposit?
If you cannot save a large enough deposit despite your best efforts, there are other options you can consider.
Get Help from Parents
Many parents are keen to help their children get on the property ladder. One option for first-time buyers is for parents to give them a cash deposit as a gift or loan. You'll need to declare this money to your mortgage provider and provide them with evidence of the fact it’s a gift and doesn’t require repayment or a document stipulating a signed repayment plan between you and your parents.
Get a Joint Mortgage
Buying a home with someone else, whether a partner, friend or relative, means you can save together and maybe reach that savings target faster. You'll also be able to borrow more, split mortgage repayments and interest payments.
Help to Buy Equity Loan
The Help to Buy: Equity Loan from the Government is for first-time buyers purchasing new-build homes who can put down a 5% deposit. The Government provide a loan and you take out a mortgage for the remaining amount. The loan size depends on your location:
- London: 40%
- Rest of England: 20%
- Wales: 20%
- Scotland: 15%
In order to benefit from the Help to Buy: Equity Loan you need to have your reservation booked by the end of October 2022.
Shared Ownership
While it's only available in England, shared ownership schemes can allow you to buy a share of a property – between 10% and 75% of its value – and pay rent on the rest. You can increase your share of the property when you can afford to.
Can I Get a No Deposit Mortgage?
It's possible to get a mortgage with no deposit, these are typically known as Family Springboard mortgages or Family Assist mortgage and are a way that your parents can help by offering security for the mortgage in the form of savings or a charge on their property. They’ll even get their savings back plus interest or have the charge removed from their property after a fixed period during which you’ve met all your mortgage repayments and interest payments.
Mortgage Deposit Guide
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Mortgage Deposit Amounts
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