Go Back

28/09/22

•

Buying

First-time buyers: saving for a deposit

According to Zoopla, the average first-time buyer now puts down £45,000 as a deposit.

In 2012, the average first-time buyer deposit was £23,000 – showing just how difficult saving the cash to buy your first home has become.

Saving for a house deposit can sometimes feel impossible, especially when you are doing it alone. Make the most of living at home as once you are paying more rent it is harder to save.

There are things you can do to save your deposit faster, though, alongside various first-time buyer schemes that require lower deposits.

This guide is packed with great tips for saving a deposit and outlines all the help that’s available to first-time buyers.

How much deposit does a first-time buyer have to put down?

When you buy a property for the first time, you’ll need to put down a deposit of at least 5% of the property’s purchase price.

That means if you’re buying a home for £200,000, you’d need at least £10,000 as a deposit.

However, only some mortgages are available with a 5% deposit, and many require at least 10%, meaning you’d need £20,000 to buy that same £200,000 property.

What is a good deposit for a first-time buyer?

A good deposit for a first-time buyer would be 15%-20% of a property’s purchase price as this often means you’ll have access to more attractive mortgage rates.

Lenders will specify a maximum loan-to-value (LTV) on their mortgage rates.

LTV refers to the amount of money you’re borrowing through a mortgage against the value of the property you’re buying.

So, if you’re putting down a 20% deposit (£40,000) on a property costing £200,000, your mortgage would cover the 80% – meaning your LTV would be 80%.

The higher your LTV, the higher your mortgage rate is likely to be, with the best rates often reserved for those buyers with an LTV below 80%.

Other costs you’ll need to pay when buying a house

As well as saving your deposit, you’ll need to factor in some other key costs that come with buying a property for the first time:

Stamp duty

As a first-time buyer, there’s a good chance you won’t have to pay any stamp duty on your purchase.

First-time buyers are exempt from paying stamp duty on the first £425,000 of a property’s purchase price, up to a maximum value of £625,000.

However, if your property is costing more than £425,000 but less than £625,000, you will have to pay stamp duty at 5%.

That means a home costing £500,000, for example, will mean a stamp duty bill of £3,750.

Mortgage fees

Your lender could charge several fees related to your mortgage, including:

A booking fee (£99 - £250)
An arrangement fee (£0 - £2,000)
A valuation fee (£250 - £1,500)

Booking fees are paid up front and are generally non-refundable, while an arrangement fee is either payable up front or can be added to your mortgage loan.

By adding to your loan, however, you’ll pay interest on the arrangement fee.

Your lender may also charge you a valuation fee, which is payable up front and relates to their own valuation of the property you’re buying.

In the current market, with the mortgages that are available changing rapidly, we recommend speaking to a financial advisor as soon as you are ready to think about purchasing to understand what you can borrow based on your circumstances.

Solicitor fees

You’ll need a solicitor or property conveyancing to complete the legal work on your purchase.

Your solicitor will either charge a fixed fee or a percentage commission based on your property’s value.

You’ll also have to cover the cost of what’s known as ‘disbursements’ on top of any main fee.

Disbursements relate to payments made by your solicitor up front to authorities for things like local council searches, which you later reimburse them for.

You can expect to pay between £800 and £1,500 for a solicitor or conveyancer.

Survey fees

Having a survey on the property you’re buying can give you peace of mind that it’s in good condition.

Depending on the level of survey you choose, and the size of the property you’re buying, you’ll pay between £300 and £1,000 for this.

How can I save a deposit fast?

If you’re saving for a property deposit, it can feel like a lifetime before you have the money you need.

But there are steps you can take to speed things up, including:

1. Saving into a Lifetime ISA

Lifetime ISAs (LISAs) were introduced to help people save property deposits or top up their pensions for retirement.

By saving into a tax-free LISA, you’ll get a 25% government bonus on what you save.

You can save up to £4,000 per year in your LISA, meaning you’ll receive a maximum £1,000 bonus each year.

However, if you withdraw the money in your LISA for any reason other than buying your first home or when you reach 60 years old, you’ll lose the government bonus.

2. Moving back in with parents

By moving back in with your parents while you save your deposit, you may be able to save money on:

Rent

When living at home and saving for a house deposit, one thing you’re guaranteed to save money on is rent.

Even if your parents decide to charge you to live at the family home, it’s unlikely to match the amount you would have been paying in rent on a flat or house.

Food

Again, your parents might request that you pay your share to cover food and drink while you’re living at home.

But you’re still certain to save on what you would spend if living on your own.

Bills

Whether it’s WiFi, phone, TV subscriptions, gas, electric, or water, bills when renting can really have a big impact when you’re saving for a deposit.

By living at home, you should be able to save on the majority of these, meaning plenty of additional cash going into your deposit savings account.

Council tax when living at home

Council tax is another big saving you can potentially make when living with your parents.

But that doesn’t mean your parents will be making the same saving.

If you live with both parents, they will already be paying the full rate of council tax, so moving back in shouldn’t make any difference.

But if you move in with only one parent, who had previously been living alone, they were probably taking advantage of the 25% council discount for single occupiers.

If you move back in, they’ll lose that discount – unless you are in full-time education, completing an apprenticeship or you’re caring for them, when you might be entitled to another discount.

3. Reducing your outgoings

One of the biggest impacts when saving a deposit are your day-to-day outgoings.

You may be able to save quicker by:

Shopping around for better deals on mobile phones, broadband, TV, and music subscriptions
Switching your energy bills and shopping around for cheaper insurance products
Moving to a cheaper gym
Selling your car and using public transport to commute to work

You could also try to reduce your everyday spending.

Look at your bank statements and add up how much you spend on common items like shop-bought coffee, food, and clothes.

Try to find areas to cut back on and set yourself a monthly limit, as this could free up money that you can put towards your deposit.

4. Earning money on the cash you spend

Loyalty cards and cashback credit cards can be a great way to earn money on what you spend.

Credit cards with cashback incentives mean you can earn a percentage credit on what you spend each month.

But to maximise the benefits of these cards, you’d need to use one for all of your spending and ensure the card was paid off in full at the end of each month.

Using a credit card well and clearing the balance each month can also be a good way to boost your credit score ahead of applying for a mortgage.

5. Making money outside of your job

Earning money from selling items you no longer need or creating a ‘side hustle’ to boost your income can help when saving a deposit.

Depending on your profession, you may be able to freelance if your employer allows it, or you could try setting up an online shop on a platform like Amazon or Etsy.

If you do earn extra money as income, however, you may have to complete an annual tax return and pay additional tax on top of your main employment.

What to do if you you’re struggling to save a deposit

If you’re struggling to save a big enough deposit to buy your first home, you could consider:

1. Buying with a friend

By putting what you’ve saved together with a friend’s deposit and combining your borrowing potential, you could be able to buy a property quicker.

If you decide to buy with a friend, however, you’ll need take legal advice on whether to buy as joint tenants or tenants in common and whether to put in place a deed of trust.

Joint tenants own a property equally, while tenants in common can own different shares.

2. Consider a gifted deposit

Gifted deposits from parents are becoming more and more common as younger people struggle to save big enough property deposits.

If your parents do gift you some money towards your deposit, you’ll need to declare this to your mortgage lender and confirm the gift isn’t a loan.

You’ll also need to consider potential inheritance tax liability should your parents gift you money and then pass away within seven years of doing so.

3. Get some first-time buyer help

Several government schemes remain available to help first-time buyers purchase a home with a smaller deposit:

Shared Ownership

Under the Shared Ownership scheme, you can purchase a share in a property with a 5% deposit.

You then pay a reduced rent on the share you don’t own and can buy more shares in the property over time, which is known as ‘staircasing’.

The First Homes scheme

The government’s First Homes scheme sees developers offer new build homes to first-time buyers at 30%-50% below their market value.

There is a price cap of £250,00 to buy under the scheme outside of London and if you later sell your home, you’ll need to do so with the same discount applied.

The 95% mortgage guarantee scheme

The 95% mortgage guarantee scheme was introduced by the government to boost the number of mortgages available to first-time buyers with 5% deposits.

The scheme sees the government guarantee a portion of the mortgage lender’s liability should a buyer fall into mortgage arrears.

Any lender offering a mortgage under the guarantee scheme must provide a five-year fixed rate option.