Buying your first home is a huge milestone in your life. It’s an exciting prospect, but the need to save up a deposit towards the purchase can feel daunting.
The deposit for a new home is the money that you will put towards the purchase, and the rest is made up by your mortgage. The amount that you will need to save will depend on the price of your new home, but it can also affect the range of mortgages that become available to you.
When looking at a range of mortgages with most lenders, they will usually show a criteria of “LTV:” Loan to Value. This shows the minimum share of the purchase that needs to be made up of your deposit. If a mortgage is available with 75% LTV, the deal will only be available if you have built up a deposit of 25% of the purchase price. A mortgage with 90% LTV means that you only need to provide 10% of the purchase price as your deposit.
With a higher deposit, you might be able to secure a lower interest rate. This would mean that your repayments would be lower.
Maximising the deposit that you have when buying your first home is important. Once you start saving towards it, you will find that the amount builds quicker than you might think.
Here are some ideas to help you build up the deposit for your new home, step by step:
It’s important to think about how much your new home is going to cost, and how much you can afford to pay back each month when you first take on the home. Most banks and building societies will have tools available on their websites that allow you to calculate how much repayments will be for different interest rates and buying prices, so you can work out how much of a deposit you need to build up.
When setting your target, it’s worth adding extra for things like solicitor’s fees, moving costs, and any essentials that you might need when you first move into the property.
There are lots of different savings accounts on the market and interest rates can change, but there are special accounts that are designed for first-time buyers, such as a Lifetime ISA. On top of what you put into your account and interest, a Lifetime ISA includes a government bonus of 25% of your savings (up to £1,000 per year).
Tip: Choose an account that charges for, or doesn’t allow, withdrawals if it’s not for a deposit. This way, you may not be as tempted to take money out of your account for other reasons.
The easiest way to make saving money into a habit is to automate it. Set up a monthly transfer on payday from your current account to your savings account. You don’t need to set up a large monthly deposit – even £100 per month adds up fast. If you want to maximise the government bonus on a Lifetime ISA, saving less than £334 per month would mean £4,000 per year and £1,000 from the government.
Some banks have a system that rounds up the value of each purchase you make during the month to the nearest pound, and pays the difference into your savings account each day. You won’t notice the extra 10p here and there, but it will soon build up.
If you want to prioritise saving for your future deposit, it’s a good idea to review where you are spending money in the here and now. Check your subscriptions, impulse buys, and expensive habits: is there anything that you don’t need or could potentially reduce, to allow you to put more towards your new home instead?
A little extra cash each month can help you achieve your goal faster. Selling items you don’t need through Vinted or eBay could add some extra cash to your bank balance, and finding cashback deals when you buy online can also build up quickly. Some banks have offers attached directly to your account, and any rewards can be put straight into your deposit fund.
One of the best ways to save up for your deposit is to find out how much your repayments will be each month for your dream home, and then aim to put that much into your account each month. This might be tricky (especially if you currently pay rent), but it helps to build discipline and proves to lenders that you can afford the repayments on your mortgage.
If you find that the deposit that you need is too hard to achieve, there are options available that can reduce the amount that you need to pay up front. Shared Ownership schemes allow you to buy part of the house – usually 50% – and then pay rent on the remainder. This means that you need a lower deposit, and you can increase your share in the property over time.
Saving up can feel like a grind, but if you’re careful and maximise what you can put away each month, it can also be rewarding. Find ways to celebrate the milestones that you reach as you put away more and more, and remember that with each transaction, you’re one step closer to your front door!
