Saving for a house deposit can often seem like the hardest part of buying a home and is usually the main focus for many people. Your home deposit is vital for gaining a mortgage and represents the initial lump sum that you’ll pay towards the overall property purchase.
While having a large deposit provides you with the best chances of getting a good mortgage deal with a low-interest rate, there are plenty of options for people that have lower deposits and want to get on the property ladder.
The average UK house price at the time of writing is around £286,000, which is £6,000 more than it was this time last year. This may seem like a huge jump but it’s not as far out of reach as you may think, especially when we consider that the average age of a first-time buyer in the UK is also now 34.
While it can seem like a daunting task, remember that the more you pay on your mortgage deposit, the less you’ll pay overall. There are several factors that go into how much you need to save and they are:
An example of this is: If a property is £200,000, a 10% deposit for a mortgage is going to be £20,000.
When looking at much you need to save for a deposit, bare in mind that the larger your upfront deposit, the lower your monthly mortgage payments will be. The percentages required tend to go up and down in multiples of 5 but ultimately, the more you save initially the better you’ll be in the long-term.
Obviously, the higher the house price, the larger the deposit you’ll need. With this in mind, it’s a good idea to set a maximum budget that you can go to and remember, there will be extra fees such as legal fees so budget for those alongside your deposit.
If you're buying through one of the affordable homeownership schemes listed below, remember that how much you need for a deposit may change significantly:
The Shared Ownership Scheme through Platform Home Ownership allows you to purchase a share of a new build home without needing a large deposit as you would if you purchased a property outright.
How does shared ownership work?
Shared ownership offers the opportunity to purchase between 25% and 75% of a property. You simply buy the share amount that suits your affordability and circumstances and then pay rent on the remaining share that you don't own yet.
As Platform are a housing association, the subsidised rent will be considerably lower than privately renting in the same area.
Typically you only need a deposit of as little as 5% of the value of the share you wish to buy, meaning you could get on the property ladder much quicker than you thought.
Once you own a share in one of our properties you can also look at staircasing which will be explained further down.
Just remember the bigger the share you buy in the first instance, the less rent you pay on a monthly basis.
The rent-to-buy scheme allows you to rent a quality new home at a reduced rental amount of roughly 80% of the market value, which allows you to save the remaining 20% towards a deposit, with the aspiration of buying your home on a Shared Ownership or outright basis.
How does Rent to Buy work?
If you dream of owning your own home but are struggling to fund the deposit required, rent to buy is the perfect route to help you achieve home ownership.
If you're a working household, you're able to move into a rent-to-buy property on an Assured Shorthold Tenancy basis for a period of five years.
During this time, you'll pay a reduced rent of just 80% of the full market value and have two opportunities to buy: buy the property under shared ownership between years one to five or on an outright basis by the end of the five-year term.
What are the benefits of Rent to Buy?
- You're able to move into your new home and save towards purchasing the property
- You'll pay a reduced rent on the property - 20% less than the market value
- You can settle into your new surroundings knowing that you'll be able to buy the home you're renting
Who is eligible for Rent to Buy
In order to qualify for Rent to Buy, there are criteria you must meet. Including:
- Be registered with Help to Buy
- A working household
- Do not currently own a home
With shared ownership you will part buy, part rent your home. Through the staircasing process, you can then buy a higher share of your home and pay less rent.
You can buy more shares in your home as and when you can afford it. The more shares you have in your home, the less rent you will pay, until eventually, you own your home outright and no longer pay rent to us.
Buy a brand new home through outright sale
Outright sale is the most traditional way to purchase a home. This means you will own 100% of your home and will be the sole owner of the property.
Buying an outright sale property will mean you wont need to meet any eligibility criteria that may apply to some Shared Ownership properties.
Outright sale might also be referred to as Market Sale.
When you’re considering building a deposit, there’s never a bad time to start saving. Below you can find some tips on how to save money, reduce your regular spending and how to save for a house deposit:
Look at your debt payments: Before you think about buying a house, look at any outstanding debts you have and get these cleared up before you buy your first home. It’s a good idea to use any current savings to pay off these debts and then start fresh.
Open a savings account: If you open a separate saving account with a decent interest rate or a lifetime ISA (where the government may provide a 25% bonus based on what you put in), you can start to build up regular savings. On a more practical level, set up a direct debit of a set amount that goes into your savings when you get paid. This way, you’ll never forget to do it and can budget as if it doesn’t exist.
Budget effectively: If you look at your everyday spending and set budgets, you’re more likely to lower your monthly expenditure. If you eat out at restaurants or order takeaways regularly, set a monetary limit on how much you can use for these reasons and put that in a separate pot. Bank accounts such as Monzo have pots you can set up for this purpose, with real-time tracking and forecasting to see how much you’re likely to save.
Find an extra income stream: Whether you’re picking up extra shifts at work or finding a way of monetising a hobby, having extra streams of income make saving for a house deposit much easier. If you’re quite creative, you may be able to find a great way of making money from avenues such as arts and crafts and adding this to your savings regularly.
Utilise money-saving sites: There are a range of money-saving sites out there that can help you regularly top up your savings. Students often have discounts and money-saving vouchers that continue after you’ve left university which can help them start to build the foundations of a deposit.
Manage your savings account: Remember to always review your savings account each year to check you’re receiving the best interest rate. If you’ve opened a Lifetime ISA, make the most of the £4,000 allowance before the tax year ends and you’ll receive the maximum 25% bonus.
Consider affordable buying options: If you’re buying through an affordable home scheme - particularly shared ownership - you can heavily impact how much deposit you need to pay. Since with a shared ownership property, you only pay a deposit on the share of the property you’re purchasing, you may find your deposit is drastically reduced and much more accessible.