How to save for a house deposit

How to save for a house deposit

The first step of how to save for a house deposit is knowing what you’re aiming for. 

Draw up a wish list for your first home. But remember, this is your first home. The pool, private lake and home gym can wait. Think about things like travel links, job prospects, being close to family (if you like them) and neighbourhoods where you’d feel comfortable living. 

This shouldn’t be a desktop exercise – get out there and visit the places on your shortlist. Walk the streets and peer into estate agents’ windows to see what’s on the market and for how much. 

With a rough idea of the property you want to buy, you can turn an abstract savings goal into something that feels real. Then, once you’ve got the dream in mind, the next task is to save.

In practice, that means choosing the right place for your savings to grow. A Lifetime ISA can give your deposit a 25% government boost each year, which is hard to beat for first-time buyers. Cash savings accounts or ISAs keep your money safe and accessible, but some people with longer timelines – say of three to four years – might be comfortable investing a portion in lower-risk funds or cautious multi-asset portfolios to stay ahead of inflation. 

How much deposit do I need to buy a house?

How much deposit you need to buy a home depends on two things – the price of the home and the type of mortgage you take out. 

The average price paid by first-time buyers varies greatly around the country. Most first homes are either new builds, one-bed flats or studios. Here’s a national price map:

Overall, the average first time buyers’ price is approximately £260,000. Interestingly, Halifax just reported that general average house price eclipsed £300,000 for the very first time. 

In the UK, many lenders allow buyers to purchase a home with a deposit of around 5% of the property’s value. Based on the £260,000 figure, that would make the deposit you need to buy a house £13,000. If you wanted to buy in a more affordable area such as Shropshire, it might be closer to £8,200. In somewhere like Islington, London, then nearer to £30,300. 

But a 5% deposit obviously means borrowing the remaining 95%. This would be known as a loan-to-value ratio of 95%. 

And mortgages like this with smaller deposits tend to come with higher interest rates, which means higher monthly repayments. Putting down more upfront normally means lower monthly repayments. For example, TSB finds that on a £200,000 mortgage, the difference in monthly repayments between a 40% deposit and a 10% deposit is around £61 per month.  

The reason is simple: the lender is taking less risk. 

Average deposit for a house in the UK (for first-time buyers)

The average deposit for a house in the UK is £56,700. Why? Because although £13,000 is 5% and that could be enough, most don’t actually put down the minimum deposit. In fact, first time buyers typically put down between 10% and 20%. 

The picture still changes significantly depending on location. In London, average first-time buyer deposits often exceed £100,000, while in parts of the North of England, Wales and Scotland, deposits are commonly much lower, sometimes closer to £30,000 or £40,000. What’s consistent across the country is that buyers aim to save much more than lenders strictly require to get better rates and lower repayments over the long term. 

If these figures still sound daunting,  be aware that very few people do this overnight . The average age of a first-time buyer is 32 years old. Many couples combine incomes to save, and over two-thirds of first-time buyers receive financial aid from their parents.  

Can you buy a house with no deposit?

You can buy a house with no deposit in some circumstances, but be careful, because borrowing the full value of a property is not common and brings with it limitations.

Lenders mainly offer zero-deposit mortgages to people who have strong incomes, stable employment and an outstanding track record of paying rent. In other words, you have to present yourself to the lender as the picture-perfect borrower to avoid a deposit.

As we’ve discussed, lower deposits mean higher monthly repayments. If you’re depositing nothing at all, interest rates will tend to be at their highest and there may be strict conditions attached to your repayments for several years. 

Also, even if you do everything right and believe you can afford the repayments, you might still be asked if your relatives can provide their savings or income as security for the loan.

While it takes time to cobble together a deposit it’s better to get used to saving than looking for zero-deposit mortgages and shortcuts. Enjoy the journey as you build at least some deposit to reduce financial pressure in the early years of home ownership.

Ask anyone who’s done it. When it’s earned, it feels more satisfying!