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Unless you’re lucky enough to have parents or other family members who can help you financially or you’ve inherited money, you’ll usually need to save up a deposit before you can get a mortgage to buy a home. As house prices have risen, the deposits needed compared to earnings have grown too, making it increasingly difficult for aspiring first-time buyers to save up the money they need.
However, there are tricks you can use to help you save up more quickly and schemes that can give you a boost, such as the Lifetime ISA or First Homes.
What is a house deposit?
A house deposit is the money you pay upfront for a property with the rest coming from a mortgage. It’s expressed as a percentage of the property’s value. You’ll need at least a 5% deposit to take out most mortgage types, which means you’ll be borrowing the other 95%.
It’s worth saving up as big a deposit as possible, as the more you have, the less you’ll have to borrow to buy the property you want and the lower your repayments will be, find our 5 top tips to saving for a deposit. Mortgages are also cheaper the bigger the deposit you have as lenders see you as lower risk. You could currently pay an interest rate of more than half a per cent lower with a 15% deposit versus a 5% one. There may be more deals available to you as well.
You’ll still need a deposit if you’re a second-time or subsequent buyer but this will come from the equity that has built up in your home (the difference between its value and the outstanding mortgage amount) rather than your savings. You could choose to increase your deposit amount using savings to cut your mortgage costs, though.
First-time buyer deposit amounts
According to research from Halifax, the average house price paid by first-time buyers was £288,136 in 2023. This was £132,000 more than 10 years before, despite it falling by 5% between 2022 and 2023.
The current average is 6.7 times the average salary in the UK but this varies hugely between areas. The most affordable place to buy a home is Iverclyde in west-central Scotland where prices are around 2.6 times the average salary, compared to 10.6 times in the least affordable area – Islington in North London.
If you were buying a property at the average price, you would need a deposit of around £14,407 paying 5% of its value, £28,814 paying 10% and £43,220 paying 15%.
Average deposit for a house in the UK
The average deposit paid by first-time buyers was £53,414 in 2023 according to Halifax’s research – around 19% of the average purchase price. This was £9,057 less than in 2022 but £21,000 more than 10 years before.
First-time buyers in London paid a massive £108,848 versus just £29,740 in the North East, demonstrating the huge differences in house prices between different parts of the UK and the challenges of saving up a deposit to buy a home in London in particular.
Can you get a 5% deposit mortgage?
As a result of the coronavirus pandemic, lenders were reluctant to offer 95% mortgages so there were only a handful of deals available. To tackle this, the government launched the mortgage guarantee scheme to reduce the risk to lenders by compensating them for a portion of their losses if a property has to be repossessed. There are now more than 200 deals on offer.
Whether you can get a 5% deposit mortgage, however, depends on your financial circumstances and mortgage providers’ lending criteria. Lenders must make sure you can afford to repay the loan before offering you a mortgage so you’ll only be able to borrow 95% of the property’s value if the lender is confident this is the case.
Some lenders offer 100% mortgages where you don’t need a deposit. Instead, a family member or friend provides security for the loan in case you can’t repay it, either in the form of a cash deposit or a charge on their home.
Find out more about the different types of mortgages.
Saving for a house
In an ideal world, you’d simply put money into a savings account each month until you reached your goal but it might not be that easy. If you don’t think you have any spare cash to put away, create a spreadsheet to record how you’re spending your money and see where you can cut back. Once you’ve decided how much you can afford to save, put the money away as soon as you get paid each month so you’re not tempted to spend it.
Use comparison sites to find and open a savings account with the highest interest rate and regularly review it to make sure it’s still competitive. Consider locking your money away for a year or more by taking out a fixed-rate bond – these generally pay higher interest rates than easy access accounts.
If you’re a basic-rate taxpayer you can earn up to £1,000 in interest without paying tax on it (£500 if you pay the higher rate) but if you think you’ll earn more than this, make the most of your ISA allowance. This lets you save up to £20,000 every tax year into ISAs without paying tax on the interest you earn.
One type of ISA definitely worth saving into is a Lifetime ISA – you can put up to £4,000 a year into one. Lifetime ISAs are specifically designed to help you save for your first home or retirement. The government gives you a 25% bonus on the money you save each year, so if you pay in £4,000 it will add an extra £1,000.
You must be under 40 to open one and can only withdraw the money to buy your first home or when you reach 60, otherwise you have to pay a withdrawal charge of 25%.
There are number of other schemes that might be able to help you get onto the property ladder, including First Homes, which lets you buy a new home at a discount, and shared ownership, where you buy a share of a home and pay rent on the rest.
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