Starting your journey to homeownership is an exciting adventure, but it often comes with the challenge of building up a decent deposit. Let’s take a look…
When buying a property, saving for that all-important deposit can feel daunting. This is why we've gathered some insightful tips and alternative options to help you boost your deposit and step onto the property ladder with confidence.
How much should I save for a deposit on my house?
Around 5% of the property value is (in most cases) the minimum you will need to put down on your first home, but the choice of lenders and deals is more limited. If you want to be eligible for a wider choice, you'll need a 10% deposit. In short, the more you put down, the more competitive rates you can get. So for instance, if you are buying a property worth £200,000, a 10% deposit will cost you £20,000. And if you’re looking for a property that’s less than £200,000, your £20,000 deposit will go further, meaning that your mortgage borrowing will also be less.
At the end of the day, it depends on your needs and wants.
How can I save for a deposit for my first home?
There are several different ways that you can save up for your deposit, from regular savings accounts to Government schemes and gifted deposits - we’ll run you through the various options available to you.
Top tips to save for your deposit
- Lifetime individual savings account (ISA)
Who doesn’t love free money? A Lifetime ISA could definitely be considered the best savings account for a house deposit. You can use a Lifetime ISA to save up to £4,000 each year and the Government will add a bonus of 25% on the money paid in. For example, if you add the maximum of £4,000 to your account over the course of a year, at the end of the tax year the Government will top this up with an extra £1,000. As it’s an ISA you’ll also earn tax-free interest on your savings.
Lifetime ISAs are incredibly easy to set up and can be opened with just £1. To open an account, you must be aged between 18-39, and you’ll continue to receive bonuses until you are 50. If you choose to use the money in the account for anything other than your first home or retirement, you’ll pay a withdrawal charge of 25%. Additionally, the price of the property you buy must be under £450,000.*
- Set yourself a goal
Give yourself a figure to work towards. This way you have something to aim for and you can work out how much you need to put away each month. For example, if you say in January that you want to save £5,000 by next year, you know you need to put away £416 every month. Seeing yourself get closer to your goal can get addictive, leaving you wanting to save more and more.
- Set up a standing order
A great way to reach your goal is by setting up a standing order after your payday. This way you can be saving money consistently rather than putting bits away here and there. This will help you work towards your goal regularly whilst making it easier to see what you can afford to save.
Pro-tip: Some bank accounts offer options to round up your transactions. Meaning that every time you spend on your card, you automatically also top up your savings.
- Cut down on unnecessary spending
Go through your finances with a fine tooth comb and see what you can cut back on. For example, monthly streaming services can start to add up when you are paying for a few, do you need them all? Buying lunches or eating out can get expensive, could you be making food at home? When you really start to think about your spending, you can really start boosting your savings.
Pro-tip: Set yourself a budget. In this way, you can allocate your money to things you really need and want and cut out the rest. And the best part is that your budget can be as tight or as free as you please.
- Sell unneeded items
If you have any clothes, shoes, electrical items or any other items that you no longer require, look to sell them online. There are plenty of great websites and apps where you can sell your second hand possessions and bring in some extra cash to put towards your first home.
- Embrace the gift of giving
Gifted deposits are a common practice where you receive a monetary contribution towards your deposit, with no expectation of repayment or a stake in your future home. This would typically be a gift from a close family member or friend. The amount can either cover the entire deposit or supplement your savings to reach your target amount faster.
If you receive a gifted deposit, you must inform your mortgage adviser so that this can be recorded on your mortgage application. They will also be able to guide you through all necessary aspects you need to be aware of.
Are there alternative deposit options?
Yes, there are several innovative schemes designed to help first-time buyers with low deposits to buy a property. Here's a round-up of some alternative strategies from various lenders (accessible through our Mortgage Services team):
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Loan towards deposit: the possibility of using a loan to make up the deposit, as long as the loan is not with the lender offering the mortgage. Please note that in addition to your mortgage repayments, the loan towards the deposit must also be paid back according to its terms and conditions.
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Springboard mortgages: A springboard scheme enables family or friends to assist with a mortgage, potentially with no deposit from the buyer, and the helpers earn interest on their savings.
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Guarantor and joint borrower sole proprietor mortgages: A parent or relative can act as a guarantor to help secure your mortgage, without needing to be on the title deeds of the property.
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Deposit unlock: Certain lenders will consider lending 95% of the property’s value on a new build house.
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Helping hand mortgage: Offering borrowers the option of borrowing a higher loan amount when taking a 5 or 10-year fixed rate product.
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Family assist: Allows a family member to provide savings or their residential property as additional security to support an application.
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Shared Ownership schemes: These allow you to purchase a share of a property with a smaller deposit, traditionally 5%.
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Track Record mortgage: A mortgage with no deposit needed, if you have a track record of consistently meeting rental payments for a set period of time.
- £5K Deposit mortgage: Move with only a £5,000 deposit.
These are just a few of the many options available, and please note that eligibility and lender criteria will apply. You can find more detailed information by getting in touch with one of our
mortgage advisers.
Building up your deposit doesn’t need to be a solo effort. With the support of family, friends, and the variety of schemes available, you can make homeownership a tangible goal. Remember to explore all your options, seek legal advice when necessary, and keep communication open with your lender to ensure a smooth journey to getting the keys to your new home.
