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 updated Help to Buy schemes aim to make mortgages available to those who save through a Help to Buy ISA or Lifetime ISA.
If you’re a first-time buyer saving for a mortgage deposit, the updated Help to Buy schemes could help you can earn up to 2.27% interest tax-free, with an extra 25% free added by the state. This could be £1000s on top of what you save, and is definitely worth exploring.
But once you've decided which account to open, how do you save up the money? How much do you actually need for a deposit?
Create a savings goal
In 2017, the average deposit of a first time buyer was 16% of the house price, almost £32,000. However, these prices differ across the country, and the large standard deposit for a London property (over £100,000) skews the figures. Consider what kind of property you want, and what area you're considering, then do some research. Consider the house prices in that area, and work out what 16% is. Now you know what you're working towards. Keep that number visible, near your computer or in your wallet - a good reminder every time you reach to buy something you don't need!
Get information from a mortgage lenders or mortgage broker
Understanding your mortgage options is one of the best things you can do. 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 food 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 nights out, and lowering any expensive contracts or gym memberships. 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. Keep your goal in mind, and plan a (reasonable) treat for yourself once a month, so you don't start suffering from FOMO (Fear Of Missing Out).
Use our moving cost calculator to work out how much it will cost for you to move house
Lighten the luxuries
If you’re serious about saving money for your first house deposit, then it should take precedence over life’s other luxuries. It can be hard to say 'no' to those theatre tickets that became available, that holiday package that's on sale, or that new piece of technology you really want. It can feel painful, but you get used to saying no. Remember the end goal, and how good it will feel to own your own home.
Moving back in with your parents
This may not seem ideal, but 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 allow you to pay a smaller, token sum toward living expenses. Moving back into a parental home is becoming increasingly common (22% of first time buyers were living with their parents in 2017) as house prices rise and mortgages are more difficult to secure. Limiting the outgoings on rent, utilities and bills is one of the best ways to save larger chunks of money. Just make sure you set rules upon moving back home - you're moving home as an adult, which may mean new territory, for both you and your parents. It's also worth setting a deadline date, which will make it easier to adjust to being back home.
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. Even if your parents can't offer a lump sum towards your deposit, there are other ways they can help, perhaps acting as a guarantor on a certain type of mortgage. If your parents are keen to help you get on the ladder, there are multiple ways they can help.
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
Your 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. Adding these on to your savings goal (so you can continue saving whilst looking at properties) means you won't have a nasty shock later down the line. You can also use our Moving Home Calculator to see how much it will cost you to move.
Good luck, savers! If you have any tips for first time buyers saving for their deposits, put them in the comments box below.
NOTE: Please be aware that Help to Buy ISAs will not be available to open from 30th November 2019. If you have a Help to Buy ISA already, they will continue to function as usual.
Updated November 2019