First time buyers guide to saving for a deposit

When preparing to buy your first home, saving for a deposit can be a difficult process. As house prices, inflation, cost of living and mortgage rates increase, it can mean that some mortgage lenders may require larger deposits of the property value. This can be challenging trying to save a large sum of money and for some within a limited time. According to the Office for National Statistics, the average UK house price was £277,000 in February 2022, which is £27,000 higher than this time last year. It’s also important to consider all the other costs that are involved in buying a property – conveyancing, legal fees, insurance policies and moving costs to name a few.

How much do I need to save?

A 5% deposit of the property value is the minimum amount you are able put down and however with this your options may be limited. A 10% deposit will provide with more options, whilst a 25% deposit will enable you to get competitive mortgage rates. The larger deposit you can provide, the less risk you will be considered to lenders and better rates will be available to you.

Where do I start?

Set a savings goal, which you can break down into easier amounts and a time frame to achieve it. Regular saving is most effective and it’s important to be realistic on how much monthly you can save so that it’s more easily attainable and doesn’t feel like such a chore or impact your life severely. To decide on how much to save, researching house prices in the area you would like to buy your property and using mortgage borrowing calculators online can help you work out how much you may need to save.

Buying schemes and saving accounts options

There are various government buying schemes such as Help to Buy and Shared Ownership and mortgage deals which you may be able to use depending on how much deposit you can raise.

With a Lifetime ISA (LISA) as a first time buyer under 40, you get a 25% bonus on your savings. For example, if you put £1,000 into your Lifetime ISA, the government will add an extra £250. This would mean you have £1,250 at the end of the tax year. It could help you in reaching your deposit goal quicker.

Top tips on how to build your savings:

  • Set up a savings account – look into a suitable ISA and consider a Lifetime ISA
  • Look at your current spending habits – analyse and see where you can possibly reduce your monthly bills and expenditure (e.g. minimise unused subscriptions/gym membership, change energy or network providers, eating out, daily coffees etc.) to save money.
  • Create a budget and stick to it – make the budget realistic so it’s easier to stick to and when you struggle, remember the goal in mind. Set up standing orders so the money is automatically allocated to savings before you have chance to spend it.
  • Reduce your rent/living costs – If possible, consider moving in with family, friends or find cheaper/shared accommodation which can allow you to save money quicker.
  • Make extra money – sell clothes, items online that you don’t need, or if you have a skill/talent/craft that you can turn into a business, this can help you earn extra cash.
  • Make use of discounts, vouchers and online deals – every little saving helps.
  • Try “no spend” months or weekends” – only pay your bills and regular outgoings and necessities and move the money you save to your savings. Consider alternative free activities.
  • Set limits – If it helps, take out a certain amount of money in cash for the week or month and leave your cards at home.
  • Consider investing options – including saving accounts with higher interest rates, stocks and shares ISAs
  • Ask for help and advice – from friends and family for support and we’re here for any financial advice you may need.

We’re here to help you on where you can save and invest your money towards your deposit, provide you with financial advice to make sure your savings and investments are working for you and advise you on how much you can borrow for a mortgage. We’ll also be here to help find the right mortgage deal when you are ready to buy your first home!

If you would like to find out more, please get in touch with one of our advisers.

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.

A stocks and shares Lifetime ISA is a medium to long term investment, which aims to increase the value of the money you invest for growth or income or both. The value of your investments and any income from them can fall as well as rise. You may not get back the amount you invested.

How can we help you?

Book a 30-min fees-free discovery call >

Book a call