As a first-time buyer, you likely have lots of questions about mortgages and the property-buying process as you look for your first home. Here, we explain how much deposit you need for a house and some tips on how to save for yours.
How much deposit do I need?
The deposit that you need as a first-time buyer depends on your mortgage lender and how much you’re looking to spend. For example, if your mortgage lender requires at least a 10% deposit and you want to buy a property for £200,000, you’ll need to put down a £20,000 deposit. A small number of lenders offer deals with a 5% deposit, but these can come with higher interest rates and fees, so saving up a larger deposit might be a better option depending on your circumstances.
Typically, you’ll be offered better rates with a larger deposit as lenders will see you as being less of a risk the more you invest into your new property to begin with. This is what initially determines your LTV, or loan-to-rate value, which shows how much of your own money is in the property and how much you’re borrowing.
How much can I borrow?
The amount that you can borrow is decided by lenders based on your salary, or joint salary, your debts, and your outgoings, including bills, childcare costs, and other personal expenses. Typically, lenders will ask to see around 3 months of payslips and bank statements to help them to work out how much they’d be willing to lend you. Once you have an idea of how much you can borrow, you’ll find it easier to determine the deposit you’ll need. However, remember that if you find that you need to save for a bigger deposit, properties may rise in value, so try to give yourself a buffer to accommodate for this.
Tips for raising a deposit
If you’re struggling to raise a deposit as a first-time buyer, there are several things you can do to save the amount you need. For example, you could open a Lifetime ISA if you don’t have one already. For every £4 you save in your Lifetime ISA the government will add £1 and you can save up to £4000 per year up until the age of 50. These savings can then be used towards your first home. You should be aware that if you don’t use the savings towards your first home and decide to withdraw the money before you turn 60, you’ll face a 25% penalty.
If a Lifetime ISA doesn’t sound like the right option for you, opening a savings account that you use specifically for deposit savings can also help. You could even choose to set up a direct debit to your deposit savings account each month so that you’re not tempted to spend it elsewhere. You’re sure to feel a sense of achievement as you see the amount building up over time. There are also apps available that can help you to save spare cash, but you won’t be awarded interest when using these.
Taking a close look at your outgoings to see if there’s anything you could cut back on can also help you to save for a deposit. Are there any hobbies or spending habits that you could cut back on while you raise your deposit? Some people also move in with friends or family to save on living expenses as this can make a big difference.
For more expert advice and mortgage solutions contact our team of mortgage advisors today!