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 2021, gathering the funds to purchase your first house can seem impossible. Official figures show that the average cost of a UK home increased by £25,000 in the 12 months to August. According to the Office for National Statistics, the annual rate of price inflation hit 10.6% during August, up from 8.5% in July, bringing the average price to £264,000.
It’s not surprising that the average age of a first time buyer in the UK has risen to 31 years is it? But, don’t worry! We have put together this handy guide to first time 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.
So, let’s get started!
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%. This is largely because they are more concerned about the current economic uncertainty which is causing house prices to fall. 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 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 £200,000 property, you would need to save a deposit of £10,000.
If finding a 5% house deposit is proving impossible in 2021, fear not – there are a number of government schemes that can help you 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:
Hopefully, with these 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.
Unfortunately, there is no set answer to how long it takes to save for a deposit. It largely depends on how much you can put into savings each month, and how much deposit for a house is required.
However, the current length of time for a first time buyer to save for a house in the UK is 7.9 years, having increased by 1.7 years.
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 by say 10%, the lender should be able to recoup 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:
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 deposit when searching for the best mortgage rates.
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 deposit for a house. Read on to find out more about what deposit schemes are available to first time buyers:
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 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 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.
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