New research from the Post Office shows how long it takes first-time buyers to save for a deposit in different parts of the UK and the different sources of income they use to reach their goal.
The average first-time buyer puts down a deposit of 24% (an average of £51,500), but the amount needed varies across the UK, from £21,571 in Blackpool to £173,431 in London.
To work out how long it will take you to save up a deposit, follow these steps:
- Decide if you are buying a property individually or with someone else
- Suss out all of your money sources, including inheritance, the bank of mum and dad, and savings
- What percentage of your monthly income should be saved for a deposit?
- Have you thought about buying a cheaper house in a more affordable area?
- Follow our tips for cutting down expenses so that you can save up a deposit more quickly
Are you buying a property individually or with someone else?
If you are buying a property on your own, then your maximum mortgage will usually be less than if you pooled your resources with a partner or friend. It might also be harder for you to save up money for a deposit if you only have one salary to save from.
On the flip side, if you’re buying a smaller property, the purchase price will likely be lower – and thus the deposit requirement will be smaller.
What sources of income can you put into your deposit?
As well as your salary, you can save up a deposit from the bank of mum and dad, savings, investment gains, a second job, or any other legal source of income you have.
The Post Office research found that the average first-time buyer gets 30% of their deposit from family contributions.
What percentage of your income should you save for a deposit?
First, figure out how how much you can (or want to) spend on buying a home. Then speak to a broker or lender to find out how much you can borrow, which will depend on your income, the property value, and your target LTV. Then you’ll know how much of a deposit you’ll need to save up – and from that, you can devise a savings strategy to hit that target.
Set a timeframe for saving up the deposit. Ideally, you don’t want this to be too long or house prices could continue to rise, pushing up the deposit amount and keeping it out of reach. Realistically, it will usually take a few years to save up a deposit, even if you’re on a high salary or dramatically reduce outgoings by living with your parents.
If you need a 15% deposit to buy a £200,000 property, you need to save £30,000.
How long this takes depends on your own circumstances, your income, and your outgoings. Be realistic about how much you can afford to save each month and don’t overstretch yourself, otherwise the target may seem impossible and cause you to give up altogether.
If you rent and prioritise saving for a deposit you might be able to save £500 a month, which would give you your deposit total in 60 months or five years. You could reduce this time with help from family, bonuses or an inheritance.
If you live with your parents, you could halve this time by doubling your savings to £1,000 a month, reaching your goal in 30 months or two-and-a-half years.
The Post Office research found that the average first-time buyer savings target was £815 a month, ranging from £565 per month in Scotland to over £1,000 in London.
To achieve this goal, first-time buyers had to save 20% of their monthly household joint income. Alongside the average contribution from family of £15,489, this allowed them to reach their deposit savings goal in less than five years.
Saving for a deposit with a partner
If you have two people saving for a deposit, it should cut the time it takes to reach your goal. On the flip side, if you’re house hunting with a partner, you might be angling for a larger and more expensive property – which would mean a larger deposit.
Either way, the same principles of working out your budget, timeframe and setting a realistic monthly savings amount applies.
Stash away your deposit savings
Set up a separate “pot” for your dedicated deposit savings – one you never touch and, ideally, pays interest if you save for two or more years. A fixed rate savings bond for two or three years will pay more interest than an easy-access savings account.
The most affordable places in the UK for first-time buyers
The Post Office research found that of all UK properties sold last year, 57% were in areas affordable for first-time-buyers.
It found 63% of people planning to buy would need to adjust the location of where they expect to buy their first home, because of affordability issues. On average new buyers can expect to move 5.2 miles from where they originally planned.
Average deposit amounts in UK cities vs. first-time buyer income
|County||City||Average house price||1-year change||20-year change||Average FTB income||Affordability ratio|
|Tyne & Wear||North Tyneside||£168,000||+7%||+233%||£36,382||4.62|
Source: Post Office Money research September 2018
The best ways for first-time buyers to save money
If you’re serious about saving for a deposit it’s likely you’ll need to make some sacrifices by cutting back on spending.
Some simple changes include making your lunch at home and taking a cup of coffee to work; walking to the office rather than commuting; and scrutinising your bank statements for any direct debits you’re not using.
The research revealed the spending that savers were willing to compromise on. 31% were ready to reduce their number of holidays and nights out. 22% were prepared to either move back in with their parents or move to cheaper rental accommodation.
23% were inclined to take longer than planned to teach their goal, 19% were willing to alter the location of their new home, and 17% were prepared to adapt the specifications of their new home from what they’d planned.
As well as cutting back, 84% of prospective first-time-buyers try to find ways to boost their incomes to reach their deposit savings target. 31% look to take on overtime in their existing job, 21% are looking for a higher paid job, and 17% want additional work.
However, the brutal combination of saving and extra work proves too much for some with 21% admitting that motivation waned over time and 14% allowing themselves “savings holidays.”
Top tips on saving for a deposit
There are many different ways to save money and hit your deposit goal. Different savings strategies work for different people and what works for you depends on your own circumstances and other financial commitments and priorities.
Here are some trusted and proven ways of saving money. Try one or a combination to reach your savings deposit target:
- Devise a robust, realistic and accurate budget to work out how much you can save each month over your agreed timeframe
- Cut back on essentials
- Declutter and sell items online or at a car boot sale
- Research the market to find a competitive savings account linked to your savings timeframe
- Move back in with your parents or find a cheaper place to rent
- Try and reduce how much you need to save (have you considered buying a cheaper home in a less desirable area?)
- Speak to your family and ask for financial support
- Research the market and check for property affordability shifts and incorporate that into your plan
- When looking to buy, seek out up-and-coming areas
- Don’t be disheartened if you have a setback
Now read our guide on the total cost of buying a home