How much deposit do first-time buyers really need?

First-time buyers in the UK have faced increasingly challenging conditions over recent years, with the average deposit amount required skyrocketing. This has been alleviated slightly by the reintroduction of more 95% loan-to-value deals from a range of lenders since 2021. We have also seen the introduction of some schemes that offer no-deposit mortgages in certain circumstances to help those struggling with high rent payments that make saving for a deposit difficult. Some specialist lenders have introduced 100% loan-to-value mortgages for first-time buyers and those who may have owned a property before.

In this article, we explore exactly how much a first-time buyer needs as a deposit, which mortgage deals are currently available to them, and how to keep the dream of property ownership alive.

How much deposit do first-time buyers need?

The amount of deposit a first-time buyer needs is usually around 10% to secure a reasonable rate of interest. The way it works is that the higher the deposit value you contribute, the lower the interest rate and, in turn, the lower the monthly mortgage payment. Having said that, you can secure a mortgage with a deposit that is as little as 5% of the property price as there are more mortgage deals available at this level now. Lenders had previously been less keen to offer mortgages with small deposits after the financial crash of 2008 and this meant that the vast majority of 95% LTV mortgages, which required a deposit of 5%, were difficult to secure.

The good news is that higher LTV products have since returned to the market. There has been a resurgence in deals around the 95% LTV mark, which means first-time buyers could secure a mortgage with as little as a 5% deposit. However, first-time buyers need to be savvy when choosing the best deal, as some high LTV products can be relatively expensive, which may result in significantly higher monthly mortgage payments. We also explain some specific circumstances that would allow a first-time buyer to arrange a mortgage with no deposit at all later in the article.

The average price of a first home in the UK is £273,427, according to the Nationwide House Prices Index which means the average deposit needed to secure a 90% LTV mortgage would be just over £27,000.

If you were to arrange your mortgage on a 95% LTV you could even secure a property purchase with around £14,000 deposit but remember to factor in the other costs of buying a home such as lender's fee, valuation, solicitors' fees and mortgage broking charges.

A good first port of call if you are looking for the best mortgage deal for your individual circumstances is an independent, whole-of-market mortgage broker, such as Habito*. The broker will be able to talk you through your options and advise you on how much you are likely to be able to borrow and what type of mortgage may be best for you.

You may also find our article on the different types of mortgages helpful, as well as our guide to the best 95% LTV mortgages.

How to save for a deposit

Even with the mortgage market opening up again, many first-time buyers will still be keen to increase their savings pot further, which may help them secure a more competitive deal in the future. Indeed, when it comes to deposits, bigger is always better, so it pays to accumulate as much extra cash as possible.

Ways to make your deposit savings go further include:

• Lifetime ISA: For those who missed out on Help to Buy, it may be worth opening a Lifetime ISA, which allows people saving for their first home the opportunity to save up to £4,000, which will be boosted by a 25% contribution by the government, up to a maximum of £1,000 per year. The £4,000 allowance is deducted from your £20,000 annual ISA contribution limit, meaning you could still benefit from the tax benefits and slightly higher savings rates on a further £16,000 of savings per year in another ISA product. you may want to check out our article: "Compare the best and cheapest Lifetime ISA"
• Cut your costs: Consider ways to reduce your monthly expenses by switching providers for utilities, mobile phones, broadband, and TV packages. These savings can then be put towards your deposit. Check out our article "25 money saving tips that could save you thousands"
• Shared ownership: For some first-time buyers, shared ownership offers a way onto the housing ladder without the need to save a relatively high deposit. As you only buy between 25% and 75% of the property, you only require a smaller overall deposit. Keep in mind that your monthly outgoings are likely to be the same as if you bought the property outright though, as you will still be required to pay rent on the proportion of the property you don't own.

Can I get help with a deposit from family or friends?

The short answer is yes - family or friends can contribute to your deposit if they are willing and able to do so. As with all deposits, the contributor will have to prove how they accumulated the money (with proof of savings and/or income) as an anti-money laundering measure. Other factors to consider are:

• The gifted deposit must be a gift rather than a loan. There must not be any requirement for any part of the gifted deposit to be repaid
• The person gifting the deposit must agree they have no rights over the property, either in terms of having a right over any equity or having a right to live in the property after purchase
• Not all lenders accept gifted deposits, so it is worth checking before starting the application
• If the person who gifted the deposit dies within seven years of making the contribution, inheritance tax may be payable

You can read more about how to arrange a mortgage with the help of friends or family in our article, "What are guarantor mortgages and are they a good idea?".

Can I get a mortgage without a deposit?

Yes, in some scenarios, it is possible to arrange a mortgage with no deposit. These types of mortgages are few and far between but can be arranged for first-time buyers who either have a track record of paying rent that is at least the same as the mortgage payment they would have to pay or are purchasing a new-build property from a developer that is part of a rate reducer mortgage scheme. Some lenders may also offer zero deposit mortgages to you if you have owned a property previously, so you do not have to be a first-time buyer to qualify. You can read more about these types of mortgages in our articles "Skipton Track Record Mortgage Review", " April Mortgages No-deposit mortgage review", "Gable Mortgages Zero-Deposit Mortgage review" and "Own New Rate Reducer Mortgage Scheme".

Further reading

How much can I borrow on my mortgage?

First-time buyers: should you buy now or wait?

 

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