How Much Deposit Do I Need For a House

As a home buyer for the first time, how much do you need to save for a deposit? Typically, lenders would agree to a deposit of 5% of the property value, but given this time of pandemic, most of them would only accept a minimum of 10%.

Though the average amount of required deposit is from 5% to 20% of the property’s value, the latter is the most recommended in order to be offered better deals and interest rates. A 5% deposit during Coronavirus period can make it difficult for you to land a mortgage and this minimum also means that you will have an LTV mortgage of 95%.

The average price of property in the UK in November 2019 is around £235,000. If you plan to make a deposit of 5% for this amount of property, you would need to have around £11,700 or £23,400 if you are making a 10% deposit. 

The bigger the amount of deposit you can make is certainly always better as it will give you an advantage to land on better deals and more choices. Along with this, your mortgage repayments will be lower as well.

Saving Up for a House Deposit

Owning a home can be a complex process and saving up for it may also not be really easy, but there is always a way. In the UK, there are some government schemes that can help you purchase your first property. One example is the Right to Buy and with this, you could opt to use the discount presented by the scheme as a deposit so you do not need to save for one. 

Some other options are, first, though rarely chosen as it can cause negative feedback is getting a 100% mortgage. Second is to take advantage of the stamp duty holiday that will last at the end of March 2021, this could give you some savings of up to about £15,000 and you could consider to either use or add it for your deposit. This stamp duty policy only applies on properties that are below £500,000.

If you wish to start saving for your deposit, determine how much you can set aside per month and how you will come up with it. You also need to decide whether you will save up for 5%, 10% or 15% deposit and consider the location for your potential property as it will also dictate the price. 

Perhaps one fortunate thing that results from the lockdowns is that first time buyers are able to save about 22% for a home deposit as they do not need to commute to work. If you work from home, you could have some savings of about £2,929. This amount is based from a survey using close to 80 locations in a 45 commute to the heart of London. 

This survey was done between April and December and this was to check how much people can save if they do not use the train to commute to work to London. Those living in Didcot, Oxfordshire had the biggest savings during the lockdown as they would have about £4,669 savings from their London train tickets. This amount is 13% more than the deposit required to acquire a property in this area.

If you are from Milton Keynes, you would have saved around £4,631 which is about 22% deposit to purchase a two bedroom home in that location. Oxshott, Surrey would have about 1.6% savings for the deposit of £93,000 also for a two bedroom home in the area. 

How Much Time is Needed to Save?

The average price of a home property in the UK is around £235,000 and although the deposit can be approximately 5% to 20%, most people provide 15%. For this given amount of property price, its 15% would be around £35,250.

If you are a first time buyer and doing it by yourself, it can take about 10 years to come up with a 15% deposit, and 15 years if you plan to buy a property in London. How long it takes for you to save for your deposit depends on several factors including your earnings, the amount you wish to save, how much you can set aside per month, week, or year. And if there are other ways for you to have some extra money like getting help from your parents.

Saving for deposit is not a walk in the park most especially if your income is not really high or if you are still young or single. But through other ways to help you fund your purchase such as the government schemes offered or help from your family, you can make it work. 

As for the amount of mortgage you can afford, this will also depend on some aspects such as having a good credit score, your mortgage lender, and your earnings per year. If your credit report is also not very good, this can also affect how much you can be allowed to borrow.

What You Can Do to Save

If you are having trouble coming up with some savings, here are some tips that you can try to achieve your goal for your deposit. Try cutting down some spending that are really not necessary, unsubscribe from those TV apps or services that you don’t really use or cancel your gym membership if you go rarely. Saving little but in a consistent manner can actually work as well.

You can also try using a budgeting app as it can make you visualize how you are actually using your money, and it will tell you what expenses you need to cut. Another way to come up with some savings is by searching for utility providers that are much cheaper.

Saving for a deposit to purchase your first property can bring too many hurdles, but there are a lot of ways to help you come up with. Equip yourself with knowledge and you will do just fine.