If you’re looking to buy a property, the minimum depositA chunk of cash (usually 5% or more) from your own savings to buy a property. The mortgage lender usually provides the rest. for a mortgage is at least 5% of the property’s value. But having a deposit of 15% or more could help you secure the best mortgage rates.
The average deposit in the UK is around £33,000, according to financial publication Moneywise.
That jumps to almost £115,000 for London and Greater London.
With a bigger deposit the lender loans you less money. As you’ll owe less money, you’re seen as a less risky investment and the interest rates your lender offers you will be lower.
The ratio between the deposit and the mortgage is known as the loan to value (LTV) ratio. For example, if you had a 5% deposit, you’d need 95% from the lender. That a 95% LTV.
Interest rates will not be as favourable for mortgages with high LTVs.
Saving for a deposit can feel like a daunting task. But there’s lots of tips and tricks that you can use to help make owning your own property a reality.
To work out how much you could potentially save, study your incomings and outgoings closely. Banking and budgeting apps make doing this a lot easier.
Then figure out the best way to manage your money by setting up a budget.
Now's the time to try and cut back on some of those little luxuries.
What you spend is personal to you. And only you know what you can go without.
But beware of putting every last penny into savings. You still need to enjoy life!
Avoid wasting money paying high interest on existing debts.
Balance transferring does not get rid of your debt completely. But it does reduce the amount of interest you need to pay. So you can pay your existing debt off quicker and start saving sooner.
Set up a direct debit to move your savings into a savings account.
Take a look around for the best savings account for you. Some current accounts offer savings accounts up to 5%. Or use an ISA to build up your savings tax free. Ideally you should get a Help to Buy ISA or Lifetime ISA.
Move your savings as soon as you get paid so you never even notice the money in your bank account.
Look through your belongings and think carefully about if you use or need them. If not, sell them.
Car boot sales and eBay are not your only options. Check out alternatives like Schpock and Depop too.
If you're lucky enough to have friends or family with money to spare, they might be able to help you raise a deposit, or help you get a guarantor mortgage.
The short answer is: between 2 and 15 years.
The longer answer is: it depends on how much you can put into savings each month, and how big a deposit you're trying to save up!
In almost all cases, you will need a deposit of at least 5% of the property price. But the average deposit for first time buyers in the UK is around 15%.
The bigger the deposit, the lower your mortgage interest rate and the smaller your monthly repayments.
For the average UK house price of £230,000, a 5% deposit is £11,500. A 15% deposit would be £34,500.
If you can save £200 per month it would take you just under 5 years to save up a 5% deposit... or 15 years for the 15% deposit!
Keep reading to find out how to save a deposit in significantly less than 15 years.
If you’re a little impatient, there's some things you can do to speed up the deposit saving process.
If you’ve already got some savings, you could increase them by saving smart.
You can save up to £4,000 per tax year with the Lifetime ISA.
The government then adds an annual 25% bonus on top. To get the bonus, you need to have saved for a minimum of one year. So it’s not the best option if you’ll need your money sooner.
Help to Buy ISA
The Help to Buy ISA only allows you to save £2,400 per tax year. But you can save £3,400 in the first year you open the account.
The government only pays you the 25% bonus when you withdraw the money to buy your first property.
Rent is probably your biggest monthly expense. Reducing your rent by moving somewhere more affordable could help you save up your deposit quicker.
Move somewhere with cheaper rent
Think carefully about how much you’re currently spending on rent and ask yourself if you could be paying less by moving. Remember to factor in moving costs like agency fees.
Move back with your parents
If your parents live close enough to where you work, could you move back in with them? You could save £1000s in rent and dramatically speed up how long it takes you to buy your own place.
It may feel like a backwards step. And the thought of sleeping in your single bed might make you shudder. But think about your potential savings. It’s probably worth it in the long run.
You're unlikely to get a mortgage if you use a loan to pay for your deposit.
When applying for mortgage, lenders will look at any debts you're currently paying off. Any outstanding debts make you more of a risk to a lender.
By taking out a loan or using a credit card to pay your deposit, you're significantly reducing your chances of being approved for a mortgage.
It’s possible to buy a property with no deposit through a 100% LTV mortgage.
But that does not necessarily mean that you should.
Rates on 100% LTV mortgages are high. A huge portion of your mortgage repayments will go towards paying off the interest rather than reducing the principal debt.
Your monthly repayments will be higher which could make your day to day living a lot more difficult.
If you have a small deposit, you could use one of the government's Help to Buy schemes to secure a mortgage.
If you can save up a 5% deposit, you might be able to use the government's Help to Buy Equity Loan scheme.
The government lends you up to 20% of the property’s value (or 40% in London). The loan is interest free for 5 years. Usually you would then sell the property to repay the loan.
With Shared Ownership, you only buy between 25% and 75% of a property. This means you need to raise a smaller deposit.
With shared ownership your monthly outgoings will be roughly the same compared to buying the whole property. Although you’re only paying the mortgage on the part you own, you’ll need to pay rent on the rest.
If you're remortgaging, you can use the equity you already have in your home as a deposit.
Equity is the difference between the market value of your home and the outstanding balance left on the mortgage.
Your monthly payments will have reduced your mortgage debt and increased your equity. Unless you’re on an interest only mortgage, chances are you'll have equity to put down as your deposit.
If your property has gone up in value, you’ll be able to add that amount to the deposit when you come to remortgageThe process of securing a new deal on your mortgage with either your current or a new lender. too.
Many second home mortgages need at least a 25% deposit.
But you might need to save an even bigger deposit depending on your circumstances. Your lender is likely to be extra cautious as you're more of a risk. You'll need to prove you can afford two mortgages.
Second home mortgage deals usually have higher interest rates than standard mortgage deals. So as well as a large deposit, your monthly repayments could also be high.
The minimum deposit for a buy to let mortgage is usually 25% of the property’s value. But it can vary between 20% to 40%.
A buy to let deposit is higher than a standard mortgage deposit as you're viewed as more of a risk to the lender.
As you're more of a risk, a bigger deposit makes you more attractive to lenders. As do strong rent prospects and a healthy credit history.
Edited by Christina Hirst
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Last updated: 25 September, 2019