Saving for a property deposit: a guide for first time buyers

If you are trying to buy your first home, a key question is likely to be how much you will need to save for a property deposit. Jane Stewart in Coodes Solicitors’ Residential Property team, explains.

If you are a first time buyer, wondering what you need to save in order to buy a house or a flat, the options and advice can sometimes be a little overwhelming.

Buying a property for the first time is daunting and often stressful, not least because you have to budget for what will undoubtedly be the biggest and most important purchase of your life so far.

It is, of course, important to recognise that the deposit towards your house purchase is a necessity. However, it is equally important to keep sight of the overall cost of buying your house and the on-going financial commitment, making sure you don’t overstretch yourself initially, causing financial hardship in the future. Always ask yourself “can I afford the house and all the outgoings that go with it?” before taking that first step onto the property ladder.

How much will I need for my property deposit?

A general rule of thumb is that you should be looking at saving anywhere between five and 20 per cent of the cost of a home. Here in the South West this could equate to between £20,000 and £39,000. Figures suggest this can take upwards of nine years to save.

This is a daunting prospect, especially if your rental income is eating into your monthly budget. It’s not surprising then that many first time buyers look to the ‘bank of Mum and Dad’ for assistance.

Of course, the Government has now recognised the need for affordable housing and have introduced several schemes to assist first time purchasers. Thankfully this means that you may not need to save the larger amounts historically needed for a property deposit.

Will I definitely need a deposit to buy my first home?

Whatever the scheme, and however you purchase your first home, an irrefutable fact is that if you do not have a deposit, you will not be able to secure a mortgage.

A deposit proves to mortgage lenders that you are solvent and that their loan to you is less of a risk. The bigger the deposit, the wider the range of cheaper mortgages with lower interest rates that will be available to you. Having a larger deposit also means greater affordability in the long run, with cheaper monthly mortgage repayments.

A lender will always need to calculate the ‘loan to value’ of the property. This translates as the percentage of the property value against what you are loaned as a mortgage. The lower the loan to value, the lower your monthly mortgage repayments will be. Beware though, that if a lender values a property at less than you have agreed to pay for it, you will need a bigger deposit and there is more chance that you will fall into negative equity.

It would be worth investigating the many Government schemes available to first time buyers. Qualifying for the Help to Buy or shared ownership schemes, for example, may mean you can finally fulfil your dreams of buying your own property.

For more information, contact Jane Stewart in the Residential Property team on 01872 246200 or jane.stewart@coodes.co.uk