How much house deposit do I need?
Saving for a house deposit on your first home can seem like a gargantuan task. Nowadays, it’s essential to have a substantial amount to offer as down-payment on a home. Fifteen years ago, 100% mortgages were commonplace, however the credit crunch of 2008 meant that lenders could no longer take the risk of offering them, and now all but non-existent.
The good news is that 90% and 95% mortgages are on the increase, so if you’re really struggling to save a 20-25% deposit, all is not lost. However, as a basic rule of thumb, when it comes to a house deposit, bigger is always better. If you can offer a larger house deposit, you’ll unlock better (and cheaper) mortgage deals.
The exact amount you need to save will depend on the price of the property you want to buy. The best thing to do is start by working out what you can afford to spend, based on your current salary. Affordability is key – you don’t want to end up struggling to meet your repayment obligations.
Bank of Mum and Dad
If saving a 20-25% house deposit seems like little more than a pipe dream, you’re certainly not alone. New research shows that many millennials will never be able to save such a lump sum, and may wind up living in rented accommodation for the long-term. Many parents who have the means to do so, are helping their children to buy their first home, by contributing towards their house deposit or taking advantage of other options such as guarantor mortgages.
Help to Buy
In recent years, the government has responded to the problem faced by first time buyers. The Help to Buy schemes are aimed at helping people to get on the property ladder, even if they don’t have a large house deposit saved.
Help to Buy – Shared Ownership
As the name suggests, this is a shared ownership scheme which allows you to purchase between 25% and 75% of your property, and pay rent on the remaining share. Later on, you can opt to purchase a bigger share of the property if you wish.
Help to Buy – Equity Loan
With an equity loan, the government lends you up to 20% of the cost of a new-build home (40% in London). You’ll then need to obtain a 75% mortgage and save 5% deposit to cover the rest of the purchase price.
You won’t be charged any interest on the 20% loan for the first 5 years of owning your home.
Help to Buy – ISA
This scheme aims to boost your deposit by topping up your monthly savings by 25%. So for example, if you pay £200 per month into your ISA, the government will add another £50, up to maximum total of £3000. The money can only be used as a deposit on your first home.
For more information, visit helptobuy.gov.uk