Saving a deposit for your first home
With the recent news from Which? Mortgage Advisors that close to a third of first-time buyers are saving for more than half a decade to afford their deposit, we offer some advice on how to get started.
The research also reported that a third of first-time buyers are likely to rely on parents to help out with their deposit. This figure rises to nearly 40% in London.
While the majority save up for an average of two years, a startling 7% of respondents reported needing over 10 years of savings to afford their first home.
As such, it's probably a good idea to start counting pennies as soon as possible.
How much do I need?
The bigger a deposit you have, the cheaper your mortgage will be.
Obviously, there is no set amount everyone should save to as property prices vary widely depending on type, condition and area. However, Which? report that in recent years a 20% deposit has become the norm for first-time buyers.
If you are struggling to save to that level, smaller deposits can be a viable option when paired with a generous first-time buyer mortgage rate. If you can afford to save a larger amount, though, the best value mortgages usually require a deposit of between 25%-40%.
Also consider that buying a home incurs a host of additional costs, including stamp duty, legal fees, Land Registry and mortgage arrangement charges from your lender.
What practical things can I do?
- Set up a monthly standing order into a high-interest savings account - to go out the day of your pay and reduce the temptation to spend it.
- Identify areas for reducing costs - how much are you spending on non-essentials? Could some be cut out? For example, if you buy your lunch every day, you're spending hundreds more than you need to.
- Switch brands to those that are more cost effective - every little does help for overall savings.
- Check out Lifehack's 55 ways to save money.
What help is available?
Savings schemes like the Lifetime and Help to Buy ISAs let you make tax-free contributions to your savings, earn interest and be paid bonuses of 25% from the government on the money you pay in.
However, some restrictions do apply on how much you can put away at one time and when you can access the money without incurring high penalties.
Gifted deposits are another option and allow someone else, usually a member of your family, to pay part or all of your deposit through your lender. You could also consider a guarantor mortgage that would let a family member cover the cost of your repayments should you find yourself unable.
David Blake, Principal Mortgage Adviser at Which? Mortgage Advisers, told City AM: “Our research reveals the real difficulty that first-time buyers have in saving enough money for a deposit.
“Given how hard it can be to get onto the property ladder, ensuring you have the right mortgage could not be more important. Seeking independent mortgage advice early on is vital in order to know what options are open to you.”