How to raise a deposit for a home
Building up a deposit is one of the biggest hurdles to getting on the property ladder. Rising house prices mean first-time buyers often need to put down tens of thousands of pounds as a deposit. Unless you have a very high salary or are lucky enough to have family prepared to stump up the cash on your behalf, that means saving hard.
A sum of 5% of the property value is the absolute minimum you will need to put down and, even then, your choice of lenders and deals will be restricted. If you want to be eligible for a wider choice you’ll need a 10% deposit, while the really competitive rates only kick in at 25%.
It’s never too early to start saving
The key to building up a deposit is, quite simply, to start saving as much as you can as soon as you can.
Post credit-crunch banks and building societies are much more cautious about who they lend to. So, the bigger the deposit you can stump up, the lower the risk you will be considered. This will give you access to a wider (and cheaper) raft of mortgage deals.
The key to building up a deposit is, quite simply, to start saving as much as you can and as soon as you can.
But don’t forget about the other costs. As well as your deposit, you’ll also need to save up for stamp duty, moving costs, and legal fees. You can read more about this in our guide to the costs of buying your first home.
How much of a deposit do you need to save?
Generally, you’d need to put down at least 5%, which is often the minimum required by lenders.
Putting down 10%, for example, would get you a better deal. If you’re buying in London, these figures will be even bigger due to the capital’s high house prices.
Don’t panic, though! Wherever you are buying, if you can only get your hands on the minimum 5%, there are schemes and deals to help you. For instance, the government is offering its Help to Buy scheme, which you can read more about in our handy guide, Help to Buy Explained.
Some lenders also offer special mortgage deals to those struggling to get on the first rung of the property ladder. You can read about these in our guide to mortgages for first-time buyers.
For more information on deposits, read the following guide: How much deposit do you need for a house
Can I buy a property without a deposit?
If you don’t have enough funds to put down a deposit for a home, but are eager to get on the property ladder, you should have the option to buy a house without a deposit.
In fact, there are lenders who offer 100% guarantor mortgages, allowing you to purchase a property with no deposit. However, you’ll need to find someone to act as a guarantor (usually a parent or grandparent), that is someone who’ll repay the instalments on your behalf if you can’t.
Bear in mind, though, that guarantor mortgages are financially-risky options. So don’t be too upset if your close family members or friends are not comfortable signing up as a guarantor.
How much deposit for a home do I need if I’m self-employed?
Since self-employed people don’t tend to have a fixed salary, lenders often see them as riskier borrowers. That said, as a self-employed, you should still be able to benefit from the same mortgage options that are available to employed people too. This is especially true if you can prove that you have a healthy set of accounts.
As always, though, the bigger the deposit you decide to put down, the better deals and rates you will be offered.
Where to save
So, where should you stash your deposit cash? The best home for it will depend on exactly when you are planning to get on the property ladder.
Regular savings accounts: : For example, if you are saving over a short period of time (i.e. one year), you might want to think about a regular savings account.
These generally require you to pay in between two set amounts (say, £25 and £300) each month, typically for a 12-month term. During this time, you usually won’t be able to make withdrawals.
Regular savings accounts tend to offer the best rates of interest, as you are agreeing to lock in your cash. On the flipside, though, you will often need to have a current account with the provider before you can apply. Take a look at some regular savings accounts to learn more.
Easy access accounts: If you’ve got less than a year to save, you’ll need to go for an easy access account. These are the most flexible accounts, as they allow you to get your hands on your cash – and add to it – whenever you need to.
The rate of interest you earn will be pretty low. As of November 2018, even the best deals paid 1.5% AER.
Watch out for withdrawal restrictions too, as some of the best paying ‘easy access accounts’ actually only permit a handful of withdrawals each year.
You should also be aware that many easy access accounts come with bonus rates that expire after a year or so. At that point, you’ll have to move your cash or suffer a plummet in returns. You can compare easy access savings accounts on our page.
Medium to longer-term savings
Most first-time buyers wanting to get onto the property ladder will need to save for several years in order to build up a deposit for a home. Therefore, they will need to find a savings account to suit them.
Cash ISAs: A great place to start is with a cash Individual Savings Account (ISA), as the interest you receive will be free from income tax. Because of this, the accounts come with a cap on how much you can pay in.
You can choose from a variable-rate ISA, where the rate can go up and down. You can also opt for a fixed-rate ISA, where you know that the interest you are paid won’t change over time.
With fixed-rate ISAs, you usually have to pay in a lump sum at the outset, which you can’t then add to. Bear in mind that you can’t usually make withdrawals. This means that fixed-rate ISAs may be a better option if you’ve already managed to build up a good start on your deposit. Browse our cash ISAs to learn more and compare various options at a glance.
Fixed-rate bonds: If you have used up your full cash ISA allowance and are looking to save in the long term, you may want to consider a fixed-rate bond. In fact, the interest you earn will be better than on an easy access account.
You will need to invest a set amount at the offset, such as £1,000, which you typically won’t be allowed to add to or withdraw from. With interest rates so low, locking your cash in for any longer than a year or two could prove a mistake.
Current accounts: It sounds odd, but these days some current accounts pay more than even the best savings accounts. They are also totally flexible when it comes to getting access to your cash.
The downside is, though, that the higher rate of interest will only apply to a set limit (i.e., the first £20,000). You can compare current accounts on MoneySuperMarket.
With savings rates notoriously low, it’s never been more important to shop around for the accounts that will squeeze the most from your cash. This is especially true as it takes so long to earn it.
You should also make sure you regularly review your savings accounts and move your money in case better rates become available elsewhere.
Your home may be repossessed if you do not keep up repayments on your mortgage.
Compare mortgages with MoneySuperMarket
Using a mortgage comparison tool can help you get a good idea of the kind of mortgage deals available. When you enter your information into MoneySuperMarket’s mortgage comparison tool, you’ll be able to compare example mortgage quotes from different providers.
Just tell us a bit about yourself, your financial situation, and your plans. We’ll help you scour the market in search of the mortgage deal that is right for your pockets and requirements. Then, feel free to use our mortgage calculators to find out how much each deal would cost you overall.