Saving for your first home can feel like trying to fill a bath with the plug out. Rent, bills and everyday life all compete for the same money, and the target can look a long way off. But a deposit is built the same way as any other savings goal: one sensible step at a time.
This plan walks you through it, from working out your number to getting your paperwork ready for a mortgage application.
Step 1: Work out how much deposit you need
Start by looking at what homes cost in the areas you would like to live. Most mortgage lenders want a deposit of at least 5% of the purchase price, although a bigger deposit usually means a wider choice of mortgages and lower rates. Many buyers aim for 10% or more for that reason.
Do not forget the extra costs that come on top of the deposit:
- Solicitor or conveyancer fees.
- A survey, so you know what condition the property is in.
- Any mortgage arrangement or valuation fees.
- Stamp Duty in England and Northern Ireland, Land and Buildings Transaction Tax in Scotland or Land Transaction Tax in Wales. First-time buyers may pay less, or nothing, depending on the price and where you buy, so check the rules on GOV.UK.
- Removals, furniture and a bit of money for the first few weeks.
Add it all up, then divide by the number of months until you would like to buy. That gives you a monthly saving figure to aim for.
Step 2: Know your options for where to keep deposit savings
Where you save can affect how quickly the pot grows. One option for people aged 18 to 39 is a Lifetime ISA. You can pay in up to £4,000 each tax year and the government adds a 25% bonus, which can be as much as £1,000 in a tax year. You can keep paying in until you turn 50.
There are rules to know before you open one. The home must cost £450,000 or less, the account must have been open for at least 12 months before you use it to buy, and you must be a first-time buyer. If you take money out for any other reason before you are 60, you usually pay a 25% withdrawal charge, which can leave you with less than you paid in. GOV.UK has the full details.
Other options include easy access and regular saver accounts, which some people use for money they might need sooner. Our guide to savings accounts explained explains the differences.
Step 3: Free up money in your budget
Go through your bank statements and sort spending into needs and wants. Then look for the quick wins:
- Cancel subscriptions you rarely use.
- Switch broadband, mobile and insurance at renewal rather than letting them roll on.
- Set a weekly spending limit for takeaways and nights out.
- Pay your savings first, by standing order on payday.
Some people move back in with family or take a cheaper rental for a while to speed things up. That is a big decision, but it can shave years off the timeline.
Step 4: Get your credit file mortgage-ready
Lenders will look closely at your credit history, so start preparing early. Check your reports with all three credit reference agencies, Experian, Equifax and TransUnion, and ask them to correct any mistakes. Make sure you are on the electoral register at your current address, pay every bill on time, and avoid applying for lots of new credit in the months before you apply. Our article on what affects your credit score has more tips.
Mortgage lenders also look at your bank statements to see how you spend, so a few tidy months before you apply can help.
Step 5: Why borrowing for a deposit rarely works
When the target feels out of reach, borrowing the last chunk can be tempting. In practice it rarely works. Mortgage lenders generally expect your deposit to come from savings or a genuine gift, and they will ask where it came from. A loan also adds a monthly repayment, which reduces how much a lender is likely to let you borrow for the mortgage itself.
If a family member wants to help, a gifted deposit is often accepted, but the lender will usually want a letter confirming it is a gift and not a loan. This article is general information, not financial advice. Free, impartial guidance on buying your first home is available from MoneyHelper.
