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First-time buyers often worry most about saving the deposit for their first home. It can take years to save enough for your first home, so is a bigger deposit better and how can you save that house deposit quicker on an average wage? The average house price versus wage The average UK house price in […]
10 January 2023
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First-time buyers often worry most about saving the deposit for their first home. It can take years to save enough for your first home, so is a bigger deposit better and how can you save that house deposit quicker on an average wage?
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The average UK house price in December 2022 was £281,272 (Source: Halifax). The average UK wage was £33,000 in 2022. This means the average house price is 8.5 times the average UK salary. A 10% deposit on a property for this price would be just over £28,000. 100% mortgages used to be popular but they are no longer widely available. It is possible to get a 5% deposit, although the interest rates on mortgage products with a higher loan-to-value ratio are often higher.
Knowing how much you need to save for a house involves calculating backwards. First, work out the price of the property type you want in the area you want to buy and add on the additional borrowing costs (for more information see our property costs guide). The minimum deposit is usually 5%, although the rates on interest are usually higher if you have a small deposit and are looking to get a 95% mortgage.
Using the average UK house price of £281,272, if you were to save a 10% deposit of £28,127 over a period of 3 years, this would equate to £781.30 per month, or £390.65 each saving in a couple. Over 5 years this would be £468.78 or £234.39 each if saving as a couple.
A 5% deposit of £14,064 over 3 years would equate to £391 per month or £195.30 each if saving as a couple. Over 5 years this would equate to £234.40 per month or £117.20 each if saving as a couple.
In addition, here are the average additional costs you will have to consider when buying a property for £281,272:
It is also beneficial to have an amount saved for any maintenance issues that occur once you move in.
This scheme is now closed. Available in England only, this loan was available to first-time buyers who want to buy a new build property as their main residence. If you applied before 31st October 2022, your application will still be processed, but you must complete the purchase of your home by 31st March 2023.
You will need to have opened this before November 2019 as the Government closed new applications, but if you already have an account you can keep saving until November 2029 and can use the money for a house deposit until December 2030. The savings limit is, however, lower than the LISA, where you can pay up to £200 per month and the government will top up any contributions you make by 25%, up to the contribution limit of £12,000. If you are buying as a couple and both have a LISA you can use both savings accounts to buy your property. You can use the money to purchase a home up to the value of £250,000 or £450,000 in London.
In April 2021, the Government launched an initiative called the Mortgage Guarantee Scheme, meaning you can put down just a 5% deposit and the Government will provide a guarantee to mortgage lenders on the portion of the mortgage between 80% and 95% of the property value, on properties up to the value of £600,000. The current scheme is subject to participating lenders and was due to end in December 2022, but has now been extended to the end of 2023.
Loan to value is how much you will be borrowing as a percentage of the property price, so essentially the property price minus the deposit amount. So for a property costing £281,272, with a 10% deposit, the loan will be for 90% of the property price, or £253,145.
A lower loan-to-value ratio will often give you access to better interest rates and cheaper monthly mortgage payments but will require a larger deposit.
Keeping your savings separate from your regular bank account and having your savings taken out on the same day each month will help to stop you from spending that money
There are apps you can download to help you budget, but a simple spreadsheet or paper list can also do the trick. Review your spending regularly and see where you can make small lifestyle changes that will increase your savings over the long term. Even 1 shop-bought coffee per day equates to £1,095 per year!
When starting to save for a house deposit, the first thing to do is review your credit history and get your finances in order. Mortgage lenders will assess your financial commitments when deciding how much they will lend you, so pay off any existing debt where possible, make sure you don’t have any missed payments and avoid taking out new credit before making your mortgage application.
Budgeting apps are great for monitoring where you are spending your money and identifying where you can cut back. This could help you work out where you might be able to cut back on spending to increase your savings.
If you have a family member with enough to help you with your deposit, or one who is prepared to act as guarantor for a 100% mortgage, this could help you to get on the property ladder quicker.
You could consider a shared ownership scheme if you can’t afford the deposit and mortgage repayments to buy the property you want. This is where you can buy a proportion of the property up to 75%. You then pay rent to the provider on the rest. The benefit of shared ownership is that you need less money to buy.
Also, the loan is interest-free for the first five years. However, if the housing provider owns 20% of the property initially when you come to sell, they will still be entitled to 20% of the value, so this is something to bear in mind.
If you are renting and have the option to move to a cheaper property or even move in with family or friends while you save your deposit, this can help you save a lot quicker.
Starting a side hustle or a second part-time job will increase the amount of income brought in each month, which could contribute towards your savings.
The right place may not necessarily be your dream home. Be flexible with your requirements and consider buying a cheaper property. Once you get onto the property ladder and the value of that property increases, you will be able to make the next step.
If you cannot afford to buy a property on your own, consider buying with a friend and share the cost of buying as well as the bills. Bear in mind, this should be someone who you know you can live with as you will be committed to a mortgage together, but as the value of the property increases, you will both benefit.
Saving a bigger deposit often takes longer, but it does have its advantages. Having a bigger deposit will give you access to lower interest rates and lower monthly mortgage payments. It will also mean you could increase your budget when looking for a property, depending on your borrowing capability. Having a larger deposit also helps to mitigate the risk of falling into negative equity if house prices drop. Negative equity is where you owe more on your mortgage than your house is worth.
However, if house prices rise while you save the deposit, your buying power may reduce and you may have spent thousands in rent during that time.
First-time buyers in England and Northern Ireland do not have to pay Stamp Duty Land Tax on the first £425,000 of the value of their property, with 5% being payable on the proportion of the property value between £425,001 and £625,000. If the property is over £625,000, however, no relief is available and normal home mover stamp duty rules apply.
Most mortgage lenders do not offer 100% mortgages. This is where you borrow the full property value and usually requires a guarantor, who is someone who takes responsibility for the mortgage repayments should you default. Having a 100% mortgage also increases the risk of falling into negative equity in the event of a house price drop.
No, you will be unable to use a credit card for your house deposit. The funds need to be from a non-repayable source.
Lenders will be unlikely to lend if a loan funds the deposit and if they do the rates at which they lend are likely to be higher. The reason is that you are taking out debt to fund debt.
You can get help from family in the form of a gifted deposit. This means that a family member would fund the deposit and agree to have no stake in the property.
There are lots of saving and budgeting apps which can help you monitor what you spend, give you budgeting tips and help you save your deposit.
When buying a home, saving for a house deposit is often daunting but it doesn’t have to be. The key is to work out what you need and work backwards to find out how you will get there. We hope we have given you some ideas on how you can save your deposit quicker. Don’t forget to download our free guide on the home-buying process so you can avoid making the common mistakes other buyers make.
From mortgages and insurance to viewings, offers, exchange and completion, our Buyers’ Guide will take you through everything, step by step, from start to finish.
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