Learn about getting a mortgage as a first-time buyer and how to find the right deal for you
The actual amount you’ll need to save for a deposit will depend on both the cost of the property you’re looking to buy, and the percentage deposit you’re able to offer. The minimum deposit to take out a mortgage in the UK is 5% of the property’s value - but the mortgage deals with the best interest rates are available to those with a larger deposit, with 40% being the optimum amount.
In this market, and particularly as a first-time buyer, finding a 40% deposit is no mean feat, in fact, the average first-time buyer puts down just half of that - 20% deposit when buying their first home.
Using the average cost of a UK house as an example:
Price of property: £281,684*
Deposit size: 20%
Deposit amount: £56,337
Savings required per month over 5 years: £939
Savings required per month over 10 years: £470
*at January 2023
Where you buy can also impact the price of the property, and therefore the deposit size dramatically, so it’s worth researching property prices in the area you want to buy for a more accurate idea of how much you’ll need.
If finding a 20% deposit still seems out of reach, then don’t worry too much, as there are plenty of mortgages available for deposits between 10 and 20% and even many mortgage lenders offering 95% mortgages, where you’ll only need 5% deposit.
Taking the above example into consideration:
5% deposit on £281,684 is much more affordable: £14,084
Savings required per month over 5 years: £235
Savings required per month over 10 years: £117
This could certainly be a quicker way to get onto the property ladder, however, bear in mind that the less deposit you have, the more you’ll need to borrow, increasing your loan to value ratio.
As well as higher loan to value (LTV) borrowing being more expensive due to the higher interest rates offered, you’ll also pay more interest over the life of the mortgage, as the balance will be higher.
Once you know how much you need to borrow, it will be much easier to create a budget and begin working towards your goal. The following tips can help you save for a mortgage more quickly and effectively:
Saving a set amount regularly is usually more effective than relying on larger one-off savings, and setting a monthly spending budget can help you to focus on a regular savings schedule.
All savings accounts pay interest on your savings, but you’ll reach your mortgage deposit target more quickly with a high interest account.
Ways to maximise the interest you receive on your mortgage savings account include:
Instant access savings accounts rarely offer the most competitive interest rates, so longer term investments, such as an ISA are more likely to be the best accounts to save for a house
If you’re under 40, the government subsidised Lifetime ISA (LISA) is a great savings account for first-time buyers, as you can get as much as a 25% boost on your savings - so long as you use the funds to buy a home, or for retirement
A fixed-rate bond for two or three years may prove the best place for any savings you already have
A regular savings account, typically held for one-year usually pays higher interest than other savings accounts, but often has a maximum savings limit per month
Using a standing order to automatically transfer money to the relevant savings account(s) is a great way to avoid missing a month
Most banks now offer a round up facility, which rounds your everyday spending to the nearest pound and adds it to your savings balance automatically
Increasing your income is an obvious way to add to your house saving account more quickly. Taking on another job is not an option for everyone, but there are a huge number of ways to earn money online, from offering your skills on a freelance basis, to selling products you no longer need.
Arguably, most people’s biggest monthly cost is rent, but there are potential savings to be made here if circumstances allow:
House sharing - either with friends or via flatshare websites can dramatically reduce your rental costs. It’s best to choose a trustworthy roommate where possible, as many shared tenancies are joint and several liability – so you’d be responsible for paying all of the rent if others fail to, or move out
Move back home - If you’re fortunate enough to be able to move in with parents or relatives, even in the short-term, this provides a great opportunity to maximise your savings
Downgrade your rental - Another option is to consider looking at cheaper private rentals. Whilst there will be compromises to make, moving to a smaller property in a more affordable area for a set period of time could help you to save more quickly
Property guardianship - Certain companies that look after listed buildings or properties on land due to be redeveloped, such as in the path of new highways, offer much cheaper rents than the private market. Do bear in mind, however, that often you won’t have any guaranteed tenancy tem and could be asked to move fairly quickly
Another quick win for many people looking to save more is to reassess their routine outgoings. TV and streaming subscriptions, gym memberships and overlapping product covers are common culprits, as well as leisure costs and daily take-out coffees.
Household utility bills have become a more difficult area to make savings in recent years, but there are still plenty of cuts to be made by switching other services, such as broadband and mobile contracts.
There are not many ways to significantly reduce the length of time it takes to save for a mortgage deposit. Let’s face it, living costs are high and deposit requirements are higher, so for most people it will be a long-term goal.
That said, there are a few ways that people in certain circumstances may be able to get onto the property ladder more quickly:
If you’re lucky enough to have a family who are willing to help you out financially, there are a number of ways you could speed up the home buying process.
Gifted deposit - which many lenders are happy to accept from close relatives and some may even consider from more distant relatives and friends
Family assisted mortgage - help people without a deposit to buy a house by using their family members’ savings, which are usually held by the lender until a defined percentage of your mortgage has been repaid
Guarantor mortgages - have taken a bit of a back seat since the introduction of family assisted mortgages, but are still available from some lenders. This is where your borrowing is secured on a relative’s property and they agree to make any payments that you miss
If you don’t have wealthy family members, a government home ownership scheme could be a good way to buy with a smaller deposit than you'd usually need. There are several options available, and you’ll need to meet certain criteria to be eligible for each.
It’s certainly an area worth considering if you’re struggling to save a large enough deposit, as all schemes focus on making buying your own home more affordable.
It’s tempting to speed up the process of saving for a house deposit by borrowing the amount you need with a credit card or loan. It’s difficult, but not impossible to take out a loan for a mortgage deposit or contribute towards it with a credit card, but most lenders will frown on this.
Your existing debts will be taken into account when you apply for a mortgage, and starting your journey having borrowed money to be able to borrow more money won’t put you in the best position in terms of mortgage approval.