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House deposit – how much do I need to buy my first home?

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When buying your first home you will need to have a house deposit.  This will typically be at least 5% or 10% of the value of the property.

If you are in a position to do so, saving for longer before buying your first home could be worth it.  Offering a larger deposit of around 20-25% or more is likely to open up a wider range of deals and give you access to lower mortgage rates.    

What is the average house deposit in the UK?

According to the latest data from the Halifax House Price Data, the average price of a first-time buyer house deposit in 2020 was just over £57,000.  The average purchase price was £260,000 which means the average deposit was approx. 22%. 

Can I get a mortgage without having a deposit?

100% mortgages used to be commonplace before the financial crisis of 2008.  They were risky for buyers, as if house prices fell, the borrower would be left in negative equity. This means that they owed more than the property was actually worth.    Since then, lending criteria has been tightened and asking borrowers for larger deposits reduces this risk.

Whilst a larger deposit will give you access to better rates, you can still get a mortgage with a smaller deposit of 5-10%.  This is a much less riskier option, even if it means waiting for a little longer to get on the property ladder.

There are a limited amount of 100% mortgages currently available, however these still require a form of ‘temporary’ house deposit.  In most cases a family member or friend, acting as a guarantor, would put a 5 or 10% deposit in a savings account linked to your mortgage.   The money is safe as long as you don’t default on your payments, and the full amount is returned after 3 years.   This may work for some people as long as you have a very willing and trusting guarantor!

Can I use a loan for a house deposit?

Lenders will usually want to know where your deposit is coming from.  Admitting that the deposit is a loan that needs to be repaid will be frowned upon. This could affect your overall chances of your application being accepted. A house deposit that you’ve saved yourself or have received as financial gift from your parents will not pose any problems as these are both non-repayable sources.  

What’s the best way of saving for a deposit?

Saving to buy your first home can seem like a never-ending task – an impossible dream.  But there are a number of steps you can take to help speed up the savings process:

Reduce your outgoings as much as possible

This may seem obvious, but the less you spend the more you can save towards your house deposit.  If you’re renting, this is always going to be a huge outgoing but could you move back in with your parents, take in a lodger or move into a shared property. 
Could you cut down on how much you use your car if you drive?  Consider walking or cycling more if feasible to do so, or even car sharing with a colleague.  Cut down on ‘luxury’ spending such as coffees & takeaways etc.  Even the smallest of savings can help things go a little quicker.

Take advantage of government saving schemes

The best way to maximise on your savings is to find the best interest rates.  Interest rates are at an all time low which is great for mortgage but terrible for savings.  Whilst there is still a lot more to be done, the government recognises how difficult it is for first time buyers and has introduced various incentive schemes such as Help to Buy and the Lifetime ISA.  These schemes offer a savings bonus of 25% which is significantly better than any standard savings account. 

If you are looking to buy your first home soon, then why not speak to So Smart Money.  Our mortgage experts can offer dedicated advice for first-time buyers and help you to find the best deal. 

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