The exact amount you need for a deposit has been revealed (Image: Getty Images/Image Source)
First-time buyers are grappling with the daunting task of saving for a house – but just how much cash do you need to have saved to get on the property ladder?
Shocking new government data released in May 2024 reveals that the average UK annual pre-tax salary sits at £35,464. Meanwhile, property platform Zoopla reports that the average UK home now demands a staggering £264,500.
This means the average house price is an eye-watering nearly 7.5 times the average wage.
The dream of homeownership remains elusive for many, particularly in the current economic climate where prices are surging across the board. The younger generation especially may find the goal of buying a home increasingly out of reach as they struggle under the weight of financial pressures.
Richard Dana, the entrepreneurial mind behind Tembo, a mortgage brokerage firm that caters to first-time buyers and those wrestling with affordability challenges, has highlighted a stark “affordability issue” within the UK. He points out that salaries simply haven’t kept pace with the skyrocketing costs of homes, reports the Mirror.
Stashing away enough funds for a house deposit is no small undertaking. While some lenders are now tempting potential homeowners with the prospect of zero deposit mortgages, Richard cautions that these options come with stringent conditions.
He notes that lenders will meticulously “assess” your rental payment history during their affordability checks.
“As expected there are significant restrictions around income type, property and credit history. They are also relatively expensive too with rates from around 5.55 percent. There is no stamp duty payable for first-time buyers on homes up to £425,000. So in theory, aside from a few thousand pounds you’d need to pay for solicitor fees, you could buy a home with very little saved.”
Richard notes that while many first-time buyers do have a deposit, the typical amount he sees is about 17 percent of the home’s value, which equates to roughly £45,000 on an average £264,000 property. He explains: “A larger deposit gives you more options and flexibility on type of property and income and will also help if there are any issues with your credit history. It also enables buyers to benefit from better interest rates which would typically start at around 4.6 percent in the current market.”
“Having said this, there are a decent number of options for those with a five percent deposit – but rates are higher (typically around 5.2 percent). A five percent deposit would equate to around £13k based on the average UK house price.”
Lifetime ISA
For those who find the prospect of saving £13k for a percent deposit daunting, there are savvy ways to maximise savings. One such method is through a Lifetime ISA, which allows first-time buyers to save up to £4,000 annually and receive a £1,000 government bonus.
Additionally, savers can enjoy competitive interest rates on their entire balance.
If savers utilise an ISA with a 4.3 percent interest rate and deposit £330 monthly, they could accumulate enough for an average five percent house deposit in just under two and a half years. If they save £200 per month, it would take four years.
There are increasingly more schemes available that can enhance the affordability for first-time buyers. These include the Lifetime ISA, blue light mortgages offering increased borrowing to NHS, emergency services and armed forces personnel, and specialist family Boost options where a loved one can support your purchase without needing to hand over cash savings.
However, there is a “lack of awareness of these schemes”, which can lead first-time buyers to underestimate their actual budget.
Shared Ownership
According to Ben Thompson, Deputy CEO of Mortgage Advice Bureau, another option is the Shared Ownership Scheme. This allows first-time buyers to purchase a portion of the property they can afford (e.g. 25 percent or 50 percent) and pay rent on the remaining part.
This scheme enables people to access properties they might not otherwise be able to afford due to location or size constraints. Ben stated: “This way, you’re also getting a foot onto the property ladder and then through a process called ‘staircasing’ which can slowly save up to own more of the house until its yours outright.”
However, this scheme does come with certain conditions. While you will need to make monthly rental payments, you won’t fully own the property.
Despite this, a shared ownership property is considered your ‘rightful home’, allowing you to decorate as you wish. However, it also means you are responsible for repairs and maintenance such as fixing or replacing a broken boiler regardless of how much of the property you own.
Typically, shared ownership properties are leaseholds, meaning you’ll have to pay ground rent on your home. You would only be eligible to extend your lease if you have “staircased” up to 100 percent ownership.
Lastly, not all lenders offer mortgages for shared ownership, but most do.
Rent to Buy
The Rent to Buy scheme provides borrowers with new build homes to rent for a specified period, with the expectation that they will buy a share of the property at the end of the rental period. Homes are available through various housing associations on assured shorthold tenancies with an affordable rent of 80 percent (or less) of market rents.
First Homes
The First Homes Scheme enables first-time buyers to purchase a home for 30 percent to 50 percent less than its market value. Buyers can search for new homes in their area by looking for developers or estate agents who are advertising properties under the First Homes scheme.
Right to Buy
The Right to Buy scheme is another option, offering most council tenants the opportunity to purchase their council home at a discounted rate. Buyers can receive a discount on the market value of their home when they qualify for Right to Buy.
The maximum discount is £102,400 across England, except in London boroughs where it’s £136,400.
Save to Buy is another initiative aimed at assisting renters by considering their monthly rental costs when saving for a deposit. This scheme is designed to help first-time buyers afford their own property by allowing them to exchange contracts for only a one percent deposit.
Homeowners can then live in a new, energy-efficient property for up to two years for a fixed monthly cost, which goes towards their five percent deposit instead of rent. Once they reach the five percent deposit, they can submit a mortgage application to purchase the home.
The Mortgage Guarantee is a government-backed initiative designed to help people get onto the property ladder by offering the chance to secure a mortgage at 95 percent of the home value, meaning they only need to pay a five percent deposit. While there are government schemes available, some individual lenders also offer their own.
For instance, the Skipton Track Record Mortgage allows renters to access the property ladder with little or no house deposit.
The Mortgage Advice Bureau provides a borrowing calculator to help prospective homeowners understand what they could potentially borrow based on their income and deposit.