How to save for a deposit

Saving for a deposit is often the biggest challenge first time buyers face in getting on the ladder. Most lenders require a minimum 5% deposit. Our guide helps you to work out how much deposit you will need and how to speed up your saving efforts to get that much needed deposit to buy your first home.

Angela Kerr Director, Editor

How much deposit do I need to save?

Typically, most lenders offer mortgage deals which require at least a 5% deposit to buy a house. A 5% deposit means you’ll need to get a 95% loan to value mortgage. A lot of lenders prefer a 10% deposit and having a larger deposit means you can access lower mortgage rates, making your monthly payments more affordable.

However, it’s possible to buy your first home with no deposit by taking out a 100% mortgage, such as Skipton Building Society’s 100% Track Record mortgage or by taking out a guarantor mortgage with help from your parents or a relative. See what to consider in our guide: how to get a mortgage with no deposit.

To find out about all your mortgage options as a first time buyer, get fee-free mortgage advice from our partners at L&C.

Setting your budget

Before you start to save for a deposit, make sure you know how much you can afford and therefore how much you need to save. Not sure where to start? Don’t worry see our guide How much can I afford to borrow?

It’s not a quick win and it involves sacrifice to save for a deposit. But setting a budget and sticking to it is still one of the best ways to make sure you’re not spending more than you earn and identify possible savings. Take the time to sit down and work out where your money is going. Where can you cut back? Prioritise what you really can’t do without and what you may be able to sacrifice for 6 months. How much would this save you? Look at your biggest outgoings for things like your mobile phone, broadband, utilities and insurance and use comparison websites to see if you can get them cheaper.  It’s also a good idea to look at how to improve your credit rating 

See our range of calculators that can give you an indication of how much you can afford, how much the mortgage will cost you monthly and more

6 Tips to help you save for a deposit:

1. Make your savings work

Savings rates are becoming more attractive so scour the market for the best deals and take advantage of ISAs if you can to help you save for a deposit.

• Use up all of your ISA allowance so you have some tax-free savings. You may want to take advantage of the government Lifetime ISA
• Fixed rate saving accounts tend to have better rates than quick access. If you think you can do without touching some or all of your savings lock them away for a few years to get the best rates.

2. Reduce your rent to save for a deposit

We all know the Catch-22: you can’t save for your own place because all your money goes into renting. If you want to break this cycle to save for a deposit, chances are you’re going to have to compromise. Just 6-12 months of not renting and living on a budget could make a huge difference to your deposit.

Here are some options to reduce your rent:

Move back with Mum and Dad

While this won’t be a practical option for everyone, if your parents have the space, you get along and they are happy to have you then you’re really just throwing money away not staying with them for a short time. Before you do move in though, sit down and discuss what financial contribution you will make, how long you’ll stay and any other ground rules they may have.

Move in with a friend or live in a shared house

Sharing a flat or living in a shared house rather than renting on your own will be cheaper and give you the chance to save up.

Get a lodger

If you have a spare room yourself then getting a lodger is a great way of cutting your rent. You will want to check with your landlord that this is acceptable. There are a number of websites that you can use to advertise your spare room.

3. Buy with a partner or friends

Alternatively, to help you save for a deposit, you could consider buying with a partner or friends. You’ll have a bigger deposit and may be able to get on the property ladder faster. But there are some major pitfalls to consider before taking the plunge. See our guide to buying a house with friends for more advice and speak to our fee free mortgage broker partners at L&C to see if this is an option for you.

4. Borrow from the Bank of Mum and Dad

More and more people are relying on help from their parents to raise a deposit. Read out guide explaining how gifted deposits work and what you need to consider. There are also options for those parents who want to help but don’t want to hand over their savings. For example, some lenders may take into account parents taking out an additional charge over their own property using a guarantor mortgage.

 We’ve teamed up with fee-free mortgage broker, L&C, who can give you details of ways your parents may be able to help.

5. Keep an eye out for new mortgage products

Lenders know how challenging it is for first time buyers to save for a deposit.  The mortgage market is constantly changing so make sure you regularly check our monthly update on best first time buyer mortgage rates and the latest mortgage products. With higher interest rates, lenders have had to become more innovative with their products to get viable customers through the door. From mates mortgages to 100% mortgages, there are plenty of options.

6. Consider getting help from the government

Over the last few years the government has launched (and re-launched) several schemes aimed at helping people buy a home and, in particular, to address the challenge of saving for a deposit. The Mortgage Guarantee Scheme allows you to get a mortgage with just a 5% deposit. With Help to Buy coming to an end, the House Builders Federation has also developed Deposit Unlock to offer 5% deposit mortgages to new build homebuyers and see our guide for what will replace Help to Buy.

To find out more about these and other government schemes check out our guide on how the government can help you buy a home. 

Ready to start looking at mortgages? We’ve partnered with the award winning L&C mortgage brokers. They’ll search the market to find you the best deal and won’t charge you a penny for their expert advice.