House Deposits and Savings for a First Time Buyer 

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Buying your first home is exciting, however, it can be daunting too when it comes to thinking about the money you will need to save for your deposit. 

In this guide, we’ll discuss what exactly a house deposit is, how you can save for one and any other additional costs you can expect to see when you buy your first home. 

Key Points:

  • A house deposit is a lump sum of money that is paid upfront when buying a house.
  • The deposit acts as security for your mortgage lender and helps to determine the percentage of the property’s value that is borrowed.
  • A larger deposit means less needs to be borrowed from the lender which can help to reduce monthly repayments. 

How saving for a house deposit works as a first time buyer

When you buy a house as a first time buyer, you will need to save a percentage of the property you are buying as a deposit. 

This deposit is needed by your lender as it provides security on the loan they give you, as well as determining the loan to value (LTV) ratio on your mortgage. 

How much deposit do you need to buy a property? 

You will usually need a deposit of 5% to 10% of the house value. For example, if you are looking at a property that costs £150,000 and you require a 10%, you will need to save £15,000. 

Some lenders offer low-deposit or no deposit mortgages, which can help you to get on the property ladder quicker, but you will likely pay more because the interest rates will be higher. 

Saving a larger deposit will create a lower LVT, which usually means you will get a better mortgage deal. If this is something you’re looking for, you might have to be prepared to shop around for lenders or save for a little bit longer. 

Government schemes for first time buyers

Saving for your deposit can seem daunting, however, there are a few government schemes set up that can help you to get on the property ladder. 

Lifetime Individual Savings Accounts (LISA)

A LISA is a type of savings account available for first time buyers between the ages of 18 and 39 for properties up to the cost of £450,000. 

You can put £4,000 each year until you’re 50 and the government will add a 25% bonus to your savings with a maximum of £1,000 each year. If you are aged 39, you must make your first payment into the account before you turn 40. 

If you are buying a property with another first-time buyer who also has a LISA, you can use both of your savings towards the same property. 

However, you should be aware that there is a penalty for taking out funds from the LISA if you are not putting it towards a deposit or withdrawing after the age of 60. 

Help to buy ISA

Although you cannot open a new help to buy ISA, if you opened one before the end of November 2019, you can still use it for your deposit savings until December 2030. Like the LISA, the government will also give a 25% bonus each year. 

However, you are limited to just saving £200 a month with this type of account. 

Mortgage guarantee scheme  

The mortgage guarantee scheme offers lenders the option to purchase a guarantee on mortgages for first time buyers who only have a 5% deposit. 

This scheme is available until 30 June 2025 and compensates mortgage lenders if the buyer cannot make payments. The guarantee applied for 80% of the property purchase price, helping to protect lenders for up to 95% of any potential losses.

Shared ownership 

Shared ownership is where you buy a share of a home from the landlord, usually the council or a housing association, and pay rent the remaining share. 

You will need to have a mortgage to pay for your share of the property, which can be between a quarter and three-quarters of the property’s full value. You will then pay a reduced rent on the share that you don’t own. 

You can then choose to buy a bigger share of the property and slowly build up to 100% of its value.       

Saving for a home as a first time buyer

Once you know how much you will roughly need to save for your deposit, you can then make a plan to reach this goal and decide how you will save the money. 

What is the best savings account for first-time buyers?

There are a huge number of different savings accounts available for first time buyers, so choosing the right one can be tricky. 

Regular savings accounts can be useful, however, you will only receive the interest amount specified for that particular account and you will not receive the extra 25% from the government. 

We highly recommend looking into opening a LISA account if you are considering opening a government scheme saving account, since you will benefit from the additional 25%. Different banks will have their own criteria and conditions for their LISA schemes, so it’s a good idea to shop around and find the best one for your circumstances. 

How much of your savings should you put aside for a house deposit?

How much of your savings you put aside for a house deposit really depends on your own personal circumstances and how quickly you want to save the money. 

For some, dedicating £100 of their savings monthly towards a house deposit may be feasible, whereas others may choose to put aside less. Either way, as long as you put money away into your dedicated savings account, such as a LISA, you will be on the right track to building up your deposit. 

How to best save money for a deposit on your first home

A deposit can be a large sum of money to save for, which is why it is a good idea to plan out how you will actually save the money. Listed below are some of our top tips to help you get started. 

Set a monthly spending budget 

Working out a monthly budget for yourself is a good way to see what you regularly spend your wage on and highlight areas where you can cut back. 

Start by looking how much of your wage goes on bills. From here you can see how much money you have left for the rest of the month and what can be put in savings. 

We hear a lot about cutting back on visiting cafes in order to save money, however, small cutbacks like this can actually help to make a difference. For example, instead of buying your lunch everyday, only buy it twice a week and put the money you saved into your savings account. 

If you are planning on moving into a property with your partner or a friend, then making savings plans together can be a great way to ensure you reach your deposit goal. 

Make sure you are using the right sort of account 

Having a savings account solely for your deposit can be a great way to help manage your money. However, making sure you have the right account is essential to help maximise your savings potential. 

As we’ve mentioned, a LISA account is one of the best types of savings accounts to help  get you on your way to saving for a deposit. 

Get help from elsewhere

If possible, consider getting the help of friends and family. Gifted deposits can be extremely helpful when it comes to saving for a house deposit as it can help to give you an extra boost.

The extra costs of buying a property you need to save for

Many first time buyers assume they only need to save for a deposit, but there are actually a few other costs that you will need to consider as well. 

Additional costs usually include:

  • Mortgage broker fees-  If you choose to use a mortgage broker to help you find the best deal, you will need to pay for their service. You can get in touch with us today at Barlow Irvin to see how much you can expect to pay for our mortgage broker services.
  • Solicitors fees –  When you’re ready to buy your home, you will need to enlist the help of a solicitor who will do all the paperwork needed to buy and sell a house. They will also handle the searches and checks that your mortgage lender requires and make any payments to third parties if necessary. You can expect to pay anywhere between £600 to £2,000+ in solicitors fees.
  • Surveys – Some properties will require additional surveys to find out things that could go wrong or weren’t picked up on by the basic survey by your mortgage lender. For example, mould, damaged brickwork, Japanese knotweed and so on. Depending on the type of survey used, it can cost anywhere between £290 to £1,200.
  • Moving costs – Hiring moving vans to move your furniture to your home can vary in cost depending on the company you use and how much you have to move.
  • Home insurance – Before your completion, many lenders require you to have your home insurance in place. You can either pay this as one lump sum or as installments throughout the year.
  • Furnishing and decorating – This one may be a given, but you will need to save some funds to help you decorate and buy furniture when you move into your new home. 

About the author 

Gary Oxborough

Gary is the Founder and Director of Barlow Irvin Financial Services Ltd. He has been in the Finance industry for over 20 years and has specialised in Mortgages since 2003. As well as running the firm, he is still actively involved in advising clients.

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