How much deposit do I need to buy my first home? 

By
Ben Bailey
21
September 2022
In today’s world, buying a property is no small feat. With the rising costs of…well, everything, many prospective first-time buyers have had to come to terms with just how difficult (or in some cases, impossible) it is to get onto the property ladder without help — be it financial support from parents, buying property with a partner, or opting for an equity loan.

Learning how much you need for a deposit, especially on your first home, can be a minefield of online calculators, jargon and information overload. By the end of this article, you’ll have some clarity. 

What’s a deposit? 

A deposit is used to pay for a chunk of the property upfront – you’ll get a mortgage for the rest, which you pay off each month (usually with interest on top). Saving your deposit is the first step in buying a house. 

How much deposit do I need to buy my first home? 

Most people will need at least 10% of the house price as a deposit to buy their first home. For example, if you’ve got your eye on a £300,000 property, you’ll need a £30,000 deposit. The rest of your property purchase will be covered by your mortgage. In our £300,000 example, you’d need a mortgage of £270,000.

Having a 10% deposit means you’ll benefit from accessing mortgages from most high street lenders, with cheaper interest rates — meaning cheaper monthly repayments.

10%?! That’s a lot of money to save

We won’t sugar coat it - a deposit of 10% is a lot to save. Fortunately, there are a few ways onto the ladder with a 5% deposit. 

One of these is a ‘95% mortgage’ - meaning you take a mortgage for 95% of the property’s value (the other 5% is your deposit). Because your mortgage is very close to the full value of the property, most lenders view 95% mortgages as risky, often leading to high interest rates. High interest rates mean you’ll be paying back more to borrow that money, and have higher monthly costs. 

There are also a variety of government and private schemes available that allow you to buy with a 5% deposit. Perhaps the most well known is the Help to Buy scheme, but there are others; shared ownership, rent to buy and private equity loan schemes. 

What do I need to save to buy my first home?

The easiest way to illustrate how much deposit you’ll need to save is by using real numbers.

As of January 2022, the average house price in the UK is £274,000 (sigh), meaning you’d ideally need a 10% deposit of £27,400. The absolute minimum 5% deposit would be £13,700, and a 15% deposit would be £41,100. The bigger your deposit, the less you’ll need to borrow on your mortgage, which unlocks better interest rates, a bigger pool of lenders and more products. 

It’s a bit of a chicken and egg situation with buying a home. You need to save a percentage of the property’s value as a deposit, but how do you know what properties you can afford in the first place? Which brings us onto…

How much can I borrow as a mortgage? 

To work out how much deposit you need for your first home, it’s good to work out roughly how much you can borrow as a mortgage. If you think of it like an equation, it would look like: 

A simple (but not totally accurate) way to work out how much you could borrow as a mortgage is to multiply your household income by 4.5. If you don’t fancy doing the maths, you can find online mortgage calculators like this one, which help you work out how much you could afford, but don’t tell the whole story. 

Truth is, a lot more goes into working out what you can actually afford to borrow — if your monthly expenses are high you won’t be able to borrow as much. It’s a good idea to tighten your belt on spending before you’re thinking of buying, because lenders will look through your bank statements ahead of issuing a mortgage offer. 

If you’re serious about owning a home, it’s worth sitting down with an independent broker. They’ll be able to look at your situation and tell you how much you could afford. 

Should I save for a bigger deposit? 

A 10% deposit will give you access to a wide range of good mortgages. The more you save, the better your mortgage options become - meaning cheaper monthly repayments. You may be asking yourself, “Should I try and get onto the property ladder now with what I’ve got — or should I keep saving?”

It’s unique to everyone, but to help you weigh up your options, here are some pros and cons: 

Pros of saving for a bigger deposit: 

  • A lower loan to value ratio (LTV). LTV calculates how much you’re borrowing in relation to the home’s value. If you’ve got a 5% deposit, you’ll need a mortgage with a 95% LTV. If you’ve got a 10% deposit, your mortgage LTV will be 90%... and so on. Lower LTV means lower interest rates, so you’ll be paying back less overall.
  • Cheaper monthly repayments. Putting up more money at the beginning means you’ll have a smaller mortgage loan + cheaper monthly repayments. 
  • A lower risk of negative equity. Not common, but this happens when the value of your home is less than the amount outstanding on the mortgage. Being in negative equity can make getting a new mortgage or moving house really difficult.

Cons of saving for a bigger deposit:

  • There’s a risk of being priced out of the market if you can’t save quickly enough to match house price increases. 
  • If you’re renting, you’ll be continuing to pay off someone else’s mortgage when you could be paying off your own. 
  • Finding your dream home isn’t always easy. If you’ve got your eyes on a property, continuing to save means potentially losing out on that perfect place.

How do I boost my deposit? 

10% of house prices today is a lot of money to save, especially if you don’t have access to the bank of mum and dad to help. Don’t resort to the lottery tickets just yet. You can boost your deposit in other ways: 

Lifetime ISA

The Lifetime ISA, or LISA, is a savings account for people saving for their first home. You can save up to £4000 a year and the Government will give you a 25% bonus on top of your savings. If you saved the maximum £4000, that means an extra £1000 for free (!). You 

Although it’s tempting… don’t access your LISA for any reason except buying a home or you’ve retired, unless it’s an emergency. You’ll pay a 25% penalty on withdrawals.

Equity loans

An equity loan is a loan on top of your main mortgage that’s secured against the value of the property you're buying. In effect, you’ll have two mortgage loans, but it means you don’t need as much deposit.  

Equity loans can be used to get you to a lower mortgage LTV, giving you access to cheaper deals which you wouldn’t have otherwise qualified for, or to increase your overall buying budget. Opting for an equity loan means you’ll own 100% of your home, but with the benefits of a bigger budget and lower monthly repayments. How much you can borrow, and the criteria, will depend on the loan provider. 

If you took out an equity loan, it could look something like this: 

5% deposit + 5% equity loan + 90% mortgage = overall buying budget 

Want to understand how Even could boost your home buying budget? We’ve made a calculator for you so you can see how much we could lend to you, based on your situation. 

Shared ownership

Shared ownership schemes are another option to help people with small deposits get onto the property ladder.

In this scenario, you’re buying part of the property — and paying rent on the rest of it. The stake that you’ll own will vary depending on how much you can afford to buy, but is usually between 25% and 75%. Your deposit will need to be 5% of the value of the share you’re buying, not the whole value of the property. 

Most allow you to staircase (buy more of the home) over time up to 100% ownership — but make sure you read the T&Cs to confirm this as some don’t allow it.

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What other costs are there when saving for my first home? 

Unfortunately, the deposit isn’t the only financial hurdle you’ll face on the road to owning your first home. There are a few fees you’ll need to consider to avoid being blindsided. Here are some common costs you need to factor into your budgets:

  • Stamp duty
  • Legal fees
  • Surveys
  • Electronic transfer fee
  • Mortgage fees
  • Mortgage valuation fees
  • Broker fees

Stamp duty

A tax you pay if your property costs more than a certain amount. Check out the government stamp duty guide for more info.

How much does it cost for first time buyers?

  • If your home is worth less than £300,000 you pay £0.
  • Between £300,001 and £500,000 you pay £0 on anything up to £300,000 and 5% on the amount over £300,000.
  • Over £500,001 you pay the normal amount .

Legal fees

You’ll need a solicitor to help you with all the paperwork for your purchase.

The price varies by solicitor but roughly between £800 - £1,500.

Surveys

An inspection of the property by a professional to make sure it’s in good structural order.

It costs between £200 - £1,000 depending on type of survey.

Electronic transfer fee

We’re not joking. It covers transferring money between lender and solicitors and costs £40 - £50.

Mortgage fees

You can add these to your mortgage, but that means you’ll be paying interest on them. 

I added mine to my mortgage because I was short on cash. For a couple of months after moving in, I paid more than my normal monthly amount until I’d paid the fees off: less interest paid, and saved the upfront fee!

They can cost between £0 - £2,000 depending on your lender and mortgage product.

Mortgage valuation fees

Not to be confused with the survey above — this is so the lender can make sure you’re paying what the home’s worth.

They cost an average is £300, but a lot of lenders pay for these as part of the product

Broker fees

If you’re using a broker, they may charge you a fee for the work they put in. A good broker will make the process 100x easier for you, filling in applications and liaising with lenders. There are some who get their cash only from the commission a lender pays them, so are fee-free for you to use. Ultimately it’s about finding someone you trust — regardless of cost, so usually £0 - £500.

How can I save for a deposit more quickly?

It’s a real slog to save the deposit you need for your first home. We’ve been chatting at Even HQ about our simple tips to save faster:

  1. Use a LISA: a LISA, or Lifetime ISA, is a dedicated savings account for your first home or retirement. You can put in up to £4,000 a year, and the Government will add a 25% bonus on top of anything you save — which you don’t have to pay back! 
  2. Reduce your rent as much as possible (for example by living in a house share or flat share, or with your family if that’s available)
  3. Pay yourself first - put away savings at the start of the month, just after you’ve been paid. This seems obvious, but it’s an effective way to make sure you don’t overspend!
  4. Apply for a single person’s discount on your council tax if you live alone, you get 25% off!
  5. Get items from Police Stolen Goods Auctions. The police get loads of lost and stolen items every year which they can’t trace back to their owners, so put them to auction. More info here
  6. Take a look at your tax code: millions of people are on the wrong one, and can end up with a hefty bill at the end of the year. Check you’re paying the right amount here
  7. Sell your old stuff: sites like Vinted and Music Magpie that can get you a bit of extra cash for things you don’t use anymore
  8. Can you get cashback? If you shop online, check Topcashback, Quidco and other cashback sites to see if you can get a discount 
  9. Try cycling and walking instead of taking Ubers: better for you, your wallet and the environment
  10. Buy in bulk! If you know you’re going to use it (like toiletries), save some cash by buying in bulk 

Don’t despair if you miss your monthly savings target. It’s only a delay, not the end of the road!

What is the best deposit amount for my first home?

How much deposit you need for your first home is unique to you, and it’s all about creating a realistic plan based on your circumstances. 10% is still the magic number for a traditional mortgage. But if that’s simply too far out of reach, it might be worth considering options if saving 5% is more realistic. 

If you’re keen to find out more about the Even equity loan, get in touch with us at hi@joineven.com or on Whatsapp.

Until then, happy saving! 

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