In the UK, saving for a deposit is often the biggest obstacle to buying a new home. With average house prices reaching £284,691 in December 2023, putting together even a 5-10% deposit can be a significant challenge for many potential buyers. Sadly, even if you reach affordability for a mortgage, not having the funds for the deposit can stand between you and getting your first home.
Saving for a deposit? We can help you get there faster! There are lots of ways to save for a deposit. Here are some tips on saving for your deposit and information about schemes to make homeownership more accessible.
Top tips to help you save for a house deposit
1. Track Your Spending
We all have many expenses that we have to pay for, with direct debits flying out each month that we might not even be aware of! There are often simple things within our everyday spending that can be sacrificed and unutilised subscriptions we could get rid of.
Making your coffee rather than paying a premium for hot drinks at a barista or preparing your lunch at home instead of buying it every day can quickly add up and boost your savings!
Sometimes, it’s as simple as thinking twice about increasing your expenditure through tempting offers. Do you need to upgrade your mobile phone to the latest model? Or could you hold on to your previous device a little longer? Keep an eye on your current account to make sure.
2. Open a savings account
Much like your other outgoings, you can automate money transfers into a savings account every month on a date you choose.
3. Utilise Government Saving Schemes
There are many government schemes to help you save for a mortgage deposit such as a Lifetime ISA (LISA). LISA is a fantastic way to save for a first home.
- The government rewards you with a 25% bonus on every contribution you make to your LISA, a maximum of £4,000 per year.
- So, if you pay the maximum £4,000, you’d get a £1,000 bonus from the government (25% of £4,000).
- If you’re a couple each saving in a LISA, you could potentially save more than £8,000 per year. Here’s the breakdown.
- Each LISA would have £5,000 (£4,000 you contributed + £1,000 bonus). As a couple, you could potentially save a combined £10,000 in a year (£5,000 x 2 LISA).
Drawbacks: There is a penalty of 25% for withdrawals unless used for a first home purchase or retirement (over 60 years old). LISAs may not offer the highest interest rates compared to other savings accounts.
4. Boost Your Income with Side Hustles
If you can earn money in addition to your main income, you can be well on your way to saving extra cash for your deposit. If you have specialised skills you can find freelance opportunities online. Vinted and similar apps let you sell unwanted clothes and earn some extra cash!
5. Bank of Mum and Dad
Many first-time buyers often ask if their parents can effectively pay their deposit for them – sometimes referred to as using the ‘bank of Mum and Dad.’ This is a fairly common practice known as ‘gifting.’
You just need to tell your mortgage lender which family member is providing the gifted deposit, as lenders do prefer you to use a close relative, think your Mum, Dad, Grandad, even your brother or sister!
Not every mortgage lender allows for gifted deposits, but don’t worry, your adviser will let you know whether the mortgage you’re looking at will allow for a gifted deposit.
What's the average house deposit?
The average deposit for first-time buyers varies depending on location. In 2022, the national average was around 21% (approximately £62,470). It ranges from £36,825 (18%) in Wales to £125,378 (24%) in London. Home buyers who are looking at their first property should consider if a more cost effective area could meet their needs, as property prices tend to be cheaper in more rural areas, and outside of cities like London.
Will a bigger house deposit lower my repayments?
While your deposit is expected to typically be 5-10% of the property price, you can put as much deposit towards the house as you like. Your mortgage payments will be lower if you pay more towards the property.
You may also have better mortgage options if you have more deposit, granting you access to lower interest rates. If you can make a savings plan that helps you generate enough for a deposit, but you can get extra money through a gift from a family member.
Compiling this deposit will improve your chances of getting a mortgage offer and get you well on your way to having your own property.
Schemes for First-Time Buyers
1. First Homes Scheme (England)
- Launched in 2021, this scheme helps first-time buyers purchase newly built properties at discounts of 30-50% below market value.
- Eligibility: You must be a first-time buyer (over 18) with a household income below £80,000 (£90,000 in London). The property must be your primary residence.
- Benefits: Significant savings on the purchase price, making homeownership more affordable. The discount is permanent, so you don’t owe anything to the scheme when you resell.
- Drawbacks: Limited availability, as the scheme is relatively new and only applies to new-build properties in England.
2. Shared ownership
- This scheme allows you to buy a share of a property (typically between 25% and 75%) and you pay rent on the remaining portion owned by a housing association.
- Benefits: Lower upfront costs compared to buying a property outright. You can also “staircase” by buying additional shares over time so you eventually own the entire property and stop paying rent.
- Drawbacks: You have limitations on alterations and often need permission from the housing association. Selling a shared ownership property can be more complex than a traditional sale.
3. Right to Buy
- This scheme applies to tenants who have rented their property from a council for a minimum period of usually three to five years.
- Benefits: Eligible tenants can purchase their council house or flat at a significant discount (typically 35% to 70%).
- Drawbacks: The discount is based on how long you’ve been a tenant and may vary depending on the property and location. You may lose some benefits associated with council housing, like subsidised rent or repairs.
4. Guarantor Mortgages
- This type of mortgage requires a family member to act as a guarantor. The guarantor’s property acts as security for the mortgage if you default on your repayments.
- Benefits: Guarantor mortgages can help first-time buyers with a limited deposit qualify for a mortgage.
- Drawbacks: If you can’t meet your repayments, it could place your guarantor’s property at risk. They often come with stricter terms or higher interest rates.
Can I Borrow a Deposit?
Some lenders allow borrowing for a deposit, but it’s not as common.
If you borrow your deposit through a personal loan or credit card, this can sometimes be held against your affordability and credit report. Not all lenders will allow this, so it’s wise to consider the impact on your overall affordability and interest rates.
Borrowing your deposit from a credit card or personal loan can be recorded on your credit report; negatively affecting your score. Mortgage providers can be wary of this, and it may go against their product criteria. Therefore, it’s a good idea to consider the impact on your affordability as you don’t want the nasty surprise of paying more in interest due to the effects of a poor credit score.
Your dreams of home ownership are in reach! While it can be a lot to take in, saving for a deposit is very possible if you take on board all our tips and advice. Our advisors have helped countless buyers like you get their first home and would love to help you get on the property ladder.
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