According to UK Finance, last year the average mortgage for first-time buyers was £145,000, and the average deposit was 15.6%. This equates to a deposit of around £22,000, a pretty daunting figure and one that could put you off if you don’t have any money in the bank already. It shouldn’t, though, because, even if it takes you a bit longer to save for a deposit, you can do it if you save wisely.
Consider Your Options
When it comes to buying a new home, you might be able to reduce the amount of money you need to save by:
- Borrowing from the bank of mum and dad: if your parents can afford it, ask if they can help you with a cash gift or informal loan or if they would be willing to act as a guarantor, which could reduce the deposit you need. Compare guarantor mortgages.
- Buy with family or friend: if you know others in the same situation as you, see if they would be interested in buying a house together, splitting the cost of the deposit between you.
If you do borrow from your parents or buy with other people, take legal advice and get paperwork drawn up that will protect everyone involved if a loan needs to be repaid early or one person wants to move out.
- Shared ownership: is an option for those renting from a council or housing association and with income under £80,000 (£90,000 in London). You buy part of the house and rent the rest until you can afford to buy it. See Shared ownership mortgages.
If you live in a council-owned property you may be entitled to purchase the home at a discount under the Right to Buy/Right to Acquire Scheme. See Right to Buy mortgages.
- Help to Buy: a government scheme for new homes where you only need a 5% deposit and the developer lends you the remainder interest-free for five years. See Help to Buy mortgages.
Know The Market
The price you will pay for a house and how much you’ll need as a deposit will vary based on where you live. Use property sites to keep an eye on the market so you know just how much your new home might cost you. This way, you can set realistic goals when it comes to saving for a deposit.
Work Out How Much You Need To Save
Once you know how you’re going to buy your home, you can work out the deposit you need and put in place a savings plan to reach your goal. Most banks and building societies offer a mortgage calculator as do price comparison websites like Lending Expert.
Don’t forget about legal fees and stamp duty when you’re working out how much you’ll need to save and add these into any calculations.
Create A Budget And A Savings Plan
Once you know how much you need to save, you need to work out how long this will take you. Start by looking at your income and expenditure and where you can save money in order to save for your deposit. One way to save money if you rent is to think about moving back in with your parents, renting a room instead of a flat/house, or getting a lodger to share the rent.
Once you know how much money you have to save, set-up a separate bank account and a standing order to make sure your money goes straight into the account before you have a chance to spend it.
If you’re a first-time buyer, think about opening a Help to Buy Cash ISA where the government gives you an extra 25% on everything you save.
Keep An Eye On Your Savings
While your savings might automatically be going into a savings account, this doesn’t mean you can forget about them entirely. Check your savings regularly to make sure you’re getting the best rate and move your money to a new account if there are better rates available.
If you come into extra money, e.g. through inheritance or bonus at work, try to save at least a percentage of it, so your savings grow quicker.
Finally, remember to be patient. It takes time to save for a mortgage deposit but, the more money you do save, the lower your mortgage payments will be, which – longer-term – will mean more money in your pocket to buy the things you need for your new home and to make sure you can still enjoy your life after you move in.