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How to raise a deposit

How to raise a deposit

published: 01 January 0001
Read time: 5 minutes

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’re earning a fortune, 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 giveyou 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 as soon as you can.

But don’t forget about 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.

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How much of a deposit do you need to save?

You’d need to put down the minimum 5% required by lenders.

Putting down 10%, which would get you a better deal. And if you’re buying in London these figures will be a even bigger due to the capital’s high house prices.

Don’t panic though as, wherever you are buying, if you can only get your hands on the minimum 5%, there are schemes and deals to help you

The government is offering its Help to Buy scheme which you can read more about in, 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 our guide: How much deposit do you need for a house?

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. Short-term savings

Regular savings accounts: For example, if you are saving over a short period of time, say a 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 which time you usually won’t be able to make withdrawals.

Regular savers 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 here.

Medium to longer-term savings

Most first-timer buyers wanting to get onto the property ladder will need to save for several years in order to build up the deposit they need and will need to find a savings account to suit.

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, or 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, and 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 of your deposit – browse our cash ISAs to learn more. You can compare cash ISAs 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 as the interest you earn will be better than on an easy access account.

You will need to invest a set amount at the offset, £1,000 for example, which you typically won’t be allowed to add to or withdraw from. And 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 then best savings accounts – and are totally flexible when it comes to getting access to your cash.

The downside is, the higher rate of interest will only apply to a set limit – for example 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 – especially as it takes so long to earn it.

You should also make sure you regularly review your savings accounts and move your money if better rates become available elsewhere.

Your home may be repossessed if you do not keep up repayments on your mortgage

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