First Time Buyer Deposit for a House
Everything You Need to Know About Deposits for First Time Buyers
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First Time Buyer Mortgage Deposits
For first time buyers, saving for a deposit can seem like the most difficult part of buying a home. A house deposit is a lump sum that you must pay towards the cost of a property, and you need one to get a mortgage.
With house prices continuing to rise in 2022, saving up the funds to purchase your first house can seem impossible. According to official government data, the average UK house price in March 2022 was £278,000. This represents an increase of 9.8% over the past year.
With house prices not looking like they’re going to drop any time soon, it’s not surprising that the average age of a first time buyer in the UK has risen to almost 34 years is it?
But, don’t worry! We have put together this handy guide to first time buyer deposits to answer all the questions you might have. Our first time buyer deposits guide will cover everything from how to save for a deposit to how much first time buyers should aim to save.
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How Much Deposit Does a First Time Buyer Need?
If you’re a first time buyer and looking to buy a property, you’re going to require a fairly hefty mortgage deposit.
Today, the minimum deposit for a house is usually 10% of the property’s value, but having a 15% deposit or more could help you secure the best mortgage rates.
In fact, in the wake of the Covid-19 pandemic, more mortgage lenders are asking for a deposit of at least 15%. Unfortunately, this makes it much more difficult for first time buyers to save for a deposit on a house.
However, it is actually possible to make it onto the property ladder with just a 5% deposit. This means that you would only have to save 5% of the total price of the property you are looking to buy. So, for example, with a 5% deposit on a £250,000 property, you would need to save a deposit of £12,500.
If finding a 5% house deposit is proving impossible in 2022, fear not – there are a number of government schemes that can help you save for a deposit on a house.
How to Save for a Deposit on a House
Saving for a deposit can feel like a daunting task, especially for first time buyers. Yet, there are lots of tips and tricks that you can use to speed up the deposit – saving process and get to your goal of buying a house quicker.
Here are a some tips for saving for a deposit:
- Budget – cutting household expenses is a great way to free up extra cash
- Cut back on non-essentials – figure out which are necessities and which are luxuries you could do without
- Manage existing debts – avoid wasting your money by paying high interest in existing debts
- Ask friends & family for help – while most people don’t like asking for money, your friends or family might have money to spare that can help you raise a mortgage deposit
- Maximise your savings – set up a direct debit to move your spare cash to a savings account as soon as you get paid
- Sell items you no longer need – look through your things and determine what you do and do not use
Hopefully, with these first time buyer deposit saving tips, you can reach your goal that bit quicker. While it may not seem like much, you must remember that every little helps when it comes to saving for a deposit.
How Long Does it Take to Save for a Deposit?
Unfortunately, there is no set answer to how long it takes to save for a first time buyer deposit. It largely depends on how much you can put into savings each month, and how much deposit for a house is required.
However, according to Barclays Mortgages’ First Time Buyer Index, the average person starts saving for a house deposit at the age of 24 and doesn’t purchase their first home until they’re 32. That’s an average of 9 years that it takes to save for a first time buyer deposit in the UK.
Is it Better to Save for a Bigger Deposit?
While you might want to save a house deposit as fast as you can, it can be better to save a little bit longer for a larger mortgage deposit. The bigger your deposit, in percentage terms, the lower the risk you present to the mortgage lender and the more deals you’re likely to have access to from providers.
By saving a larger deposit, you are putting yourself in a better position to get a mortgage with lower interest rates. Mortgage lenders will see you as a safer option because, even if house prices fall, the lender should be able to reclaim the money from the sale of the property.
The ratio between the house deposit and the mortgage is known as the loan to value (LTV) ratio. For example, if you have a 10% deposit, you will need 90% from the lender, or a 90% LTV mortgage. The higher the LTV, the higher the interest rate.
There are multiple reasons to save for a larger deposit for a house, including:
- Better mortgage deals – a larger deposit will make you less risky for mortgage lenders and so they might offer you lower interest rates
- Cheaper monthly repayments – the bigger your deposit, the smaller your loan and so the cheaper your monthly repayments
- Less risky – if you own more of your home outright, you’re less likely to fall into negative equity, where you owe more on your mortgage than your property is worth
- Improved chance of being accepted – all lenders conduct affordability checks to determine whether you can afford the mortgage repayments
So, although the minimum deposit for a house is 5% of the property price, it can be better to continue saving for a little longer to be able to leverage a larger first time buyer deposit when searching for the best mortgage rates.
What Deposit Schemes are Available for First Time Buyers?
It might seem like you’ll never be able to save for a house deposit.
But, don’t fret.
Luckily, there are a number of schemes and initiatives that can help you out when it comes to saving for a first time buyer deposit for a house.
Read on to find out more about what deposit schemes are available to first time buyers:
Help to Buy Scheme
The current Help to Buy Equity Loan scheme means that the government will lend up to 20% of the cost of a new build home.
This means that the cash deposit required for a mortgage is less – just 5% of the total. This loan for a house deposit is interest free for 5 years – so it works out a better deal than opting for a 100% mortgage.
Shared Ownership
Shared Ownership is another option for helping first time buyers save for a deposit. Unlike the Help to Buy scheme, Shared Ownership is based on the share price of the property as opposed to the full market value.
This deposit scheme allows you to buy part of a property, take out a mortgage on that percentage share and then pay affordable rent on the remaining share that you don’t own.
Gradually, you can staircase (purchase more shares) to own a larger share of the property until you own it outright and no longer need to pay any rent.
So, if you find the prospect of saving for a first time buyer deposit for a house incredibly daunting, hopefully, our guide to first time buyer deposits has helped ease your mind.
We have covered everything from how to save for a deposit and how much to save to how long to save for and deposit loan options that can help you.
Find out more first time buyers guides here.
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