However, in the past few years it has been more challenging for first time buyers to get a mortgage without a large deposit. Many lenders require a minimum deposit of between 15 per cent and 25 per cent of the property value, although the government’s current Help to Buy schemes aim to make mortgages available to those with a deposit of at least 5 per cent.
The average asking price for homes in England and Wales in March 2016 was £303,190. A 5 per cent deposit on a property at this value would be £15,160, while a lender requiring a 20 per cent deposit would need you to put down £60,638 – a significant sum by anyone’s standards.
So as a first time buyer how do you go about saving your first house deposit? What sacrifices will you have to make?
Talk to mortgage lenders or a mortgage broker
The first step in looking to buy a home should always involve information gathering. To understand what you can and cannot afford, speak to lenders about their lending policies to find out about their deposit requirements and how much you are likely to be able to borrow based on your income. As an alternative to approaching separate lenders directly, you might prefer to use a mortgage broker, who can search all the deals on the market and provide advice on which lender and mortgage are right for you.
Cutting out the ‘extras’
Are you partial to a regular midweek takeaway? Do you buy lunch at work rather than make your own sandwich at home? Could you do without your extravagant smartphone and top-tier monthly contract? As difficult as it may be, you should look to tighten your belt as much as possible, whether that means scrapping your regular takeaways, downgrading your mobile phone contract or cutting back on nights out. Even relatively minor lifestyle changes, such as stricter budgeting on your weekly food shopping, can help save a surprising amount of money over the longer term – every little helps!
Use our moving cost calculator to work out how much it will cost for you to move house
Learn to cut back on the luxuries
If you’re serious about saving money for your first house deposit, then it should take precedence over life’s other luxuries. Whether it’s treating yourself to that new car, upgrading to the latest iPad, or the Mediterranean cruise you fancied booking, such indulgence should be placed strictly on the back burner until you have your deposit saved.
Moving back with your parents
Although you may consider this a backward step, moving back in with your parents is actually one of the most sensible decisions you could make when saving for a house deposit. If your parents appreciate your position they may assist by allowing you to pay just a small token sum toward living expenses. Moving back into a parental home is becoming increasingly common as house prices rise and mortgages are more difficult to secure. This will enable you to quickly add to your savings whilst enjoying your mum’s home cooking!
The bank of mum and dad
While you might feel uncomfortable asking for or receiving financial help from your parents or other family members, the so-called “bank of mum and dad” has been helping to fund more and more property purchases in recent years. In fact, the latest figures show that around a quarter of all mortgages taken out involve financial support from family, with parents gifting or lending an average of £17,500 towards the property deposit.
Shop around for the best savings accounts
Think carefully about what you need from a savings account, and shop around for an account that gives the best combination of good interest rates and the necessary level of access to your money. If you are going to be saving over a number of years, consider accounts that will allow you to pay in regularly and reward you for not touching your savings. Conversely, if you have saved enough to be actively looking at properties, then you will want your money in an account that you can access quickly in the event of finding the home of your dreams.
ISAs (Individual Savings Accounts) allow you to invest a certain amount each year and receive tax-free interest on your savings. There are currently two particular types of ISA available – the Help to Buy ISA and the Lifetime ISA – which are designed for those saving to buy a property.
Other home-buying costs
The property deposit will be the single biggest cost when you buy your first home. However, it’s also important to remember to factor in other costs, including mortgage arrangement fees, conveyancing fees, house survey costs and stamp duty – currently charged on properties over £125,000 – as well as the costs of moving your furniture or belongings to your new home.
Last reviewed May 2016.