How much you really need to save for your first home deposit?
The simple answer to this question is: As much as you can.
But, of course, saving a large chunk of money to buy your first home is not simple at all.
Indeed, many aspiring homeowners simply can’t and the growth of renting in the UK is testament to that fact.
But if you’re determined to save a healthy deposit, the first thing to do is to set yourself a goal and a timeframe to achieve it.
So, how much do you need?
Put simply, you need at least 5% of the total value of the house you’re buying as a deposit.
The other 95% will be in the form of a mortgage, which is the maximum amount you can borrow on standard terms.
So, if you’re looking to buy a property for £300,000, you’ll need to have a deposit of £15,000.
Even if you were in the enviable position of being able to save £1,000 per month, you’d still need 15 months to save that money.
That’s why placing a realistic timeframe on your saving quest can be really worthwhile.
Should I save more?
If you can then, yes, absolutely.
A larger deposit will mean you’re borrowing less for your mortgage (less debt is always a good thing), but it also means you’ll potentially have access to more attractive mortgage interest rates – meaning you pay less for your home overall and your monthly payments will be lower.
Lending 95% of a property’s value is, for mortgage lenders, a big risk.
So, that’s why they increase their rates for high loan-to-value (LTV) mortgages.
If you’re able to save 20% of your property’s value, you’ll have access to very attractive interest rates.
But remember: You need to work in 5% increments. So, if you’ve saved a 15% deposit, there’s little value in striving to save 17% as you’ll have access to the same rates.
Looking at our £300,000 example, a 20% deposit would be £60,000.
What’s the average deposit saved in the UK?
According to Moneywise, the average first-time buyer deposit is £33,000 and the time spent saving is between three years and 15 years.
Fifteen years is a long time of saving, so clearly the quicker you can save, the better.
And that means budgeting.
OK, so what can I do to save faster?
The major things you can do are reduce your rent or, if you can, move back home.
Living back with parents is a big decision when you’ve already left home, but if you can agree a sensible monthly amount for housekeeping and be strict on your own spending, you could even get close to that magical £1,000 per month saving depending on your salary.
Manage your monthly spend by cutting out little luxuries, too.
Take a coffee to work in a Thermos flask rather than spending £2.50 in a coffee shop, for example.
Can I get a loan to boost my deposit?
Pretty much every mortgage lender in the UK will not accept a loan as a deposit.
They will consider, and quiet rightly so, a loan as an existing debt rather than cash savings and this can have a huge impact on your borrowing ability.
Many lenders simple won’t offer you a mortgage, so avoid this.
Is it possible to get a 100% mortgage?
It is possible, but these kind of mortgages are very few and far between.
Not only that, the interest rates are extremely high, too.
Lenders will take a forensic look at your finances when you apply for a 100% LTV mortgage and most will require a guarantor, too, meaning someone else will be responsible for your debt should you default on your payments.
Focus on saving your first 5% and work upwards from there, rather than jumping the gun and looking at a 100% mortgage that could cause you problems in the future.