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The ultimate guide to saving for your first home

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Michael Brown

Acting Editor
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First Time Buyers door mat

At a glance

  • First, figure out how much you will need to save up for a deposit and how much you can afford to set aside every month.
  • Then, find the best savings account for your needs, including the Lifetime ISA for its Government bonus.
  • Keep saving until you reach your goal, checking house prices on a regular basis, and don’t forget about extra costs such as legal fees.

Climbing onto the property ladder has become increasingly difficult in the past couple of years. However, it is not an impossible feat to finally put pen to paper and file your new home under your own name. Below we have discussed some of the measures you can take to start working towards this goal.

Know how much you need to save for the house you want

Everyone will have different savings goals. For example, a young bachelor might want to save for a one-bedroom flat in the city centre while a younger couple could set their sights on a semi-detached house in the countryside.

This is why it is important to start off with your own research and find out how much houses and flats in your chosen area will cost. This can be done by simply visiting an estate agency online to view not only the asking prices, but how much property has sold for on the particular street or area where you want to buy.

After this you can realistically determine whether you can save enough for a 5% or 10% deposit on your home. Saving for a 5% deposit is easier, but if you can hold on and have enough money to save for a 10% deposit then there is a greater chance of being selected for a mortgage or getting a better rate.

When determining your deposit amount, it is also important to remember that buying a house doesn’t only include a deposit. Legal, valuation, conveyancing and admin fees are just some of the costs you may encounter and should be factored into your deposit amount.   

Set a budget and a timeline

Once you have determined your savings goal take some time to sit down and itemise all the money you have coming in and going out. If you are looking to save towards a house deposit with a partner, include their income and expenses too. After this you should come up with a figure that you are comfortable contributing towards your house deposit each month and a general estimation on how long it should take you to reach this goal.

Struggling to save?

If you have trouble saving, treat your monthly savings contribution as part of your regular expenditure. Set up a direct debit or standing order for a set amount each month that goes straight to your savings pot. Just remember to always have enough money in your bank account when the payment is due.

How to save for a house deposit quickly

If you would like to save for your house deposit in a shorter timeframe, consider ways to increase your income and decrease your expenditure. There are numerous means of doing this, but below are some key considerations to note:

  • Switch to a discount supermarket and buy supermarket own brands.
  • Reduce fuel costs and cycle or walk to work – if it’s too far then try lift sharing to reduce your commuting costs.
  • Work a little more; accept overtime, if your main job allows it, consider a second job or freelancing in the evenings and weekends.
  • Reduce your current rental costs – how much more could you save each month if you moved back in with Mum and Dad? Or can you share with a partner or friend?
  • Switch to a new current account – you can now earn over £100 for doing so.
  • Use a cashback site – valid purchases will then earn you money back!
  • Get a cheaper deal on your mobile, broadband and utilities – this can save you hundreds of pounds.

Find a financial adviser near you

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Review your savings plan regularly

By now you should have a general plan on how to own your first home. However, it is a common mistake to make this a one-off calculation. Potential first-time buyers should revisit their plans every so often as you will be surprised how much can change in a short period.

For example, you might gain a promotion at work which comes with extra pay benefits. At this stage you might feel inclined to commit more money towards your house deposit.

In addition to your own personal developments, there are broader factors at play in the economy. House prices are constantly fluctuating, and you could revisit your savings plan to find you need to save more to buy your chosen home.

To keep up with house prices, read the latest Moneyfacts news where each month we publish a story on how the average UK house price has moved each month. 

Get free cash from the Government

Those aged between 18 and 39 years old qualify for a Lifetime ISA, which can be a crucial savings tool to help you save for your first home.

In essence, this ISA allows its users to deposit up to £4,000 into an account each year before receiving a 25% bonus from the Government. In other words, the Government could be contributing up to £1,000 each year towards your house deposit, tax-free.

However, there is a catch to remember. Lifetime ISAs can only be used for first-time buyer house deposits or retirement. If these funds are withdrawn for any other purpose you will incur a 25% penalty, which ends up eating into the Government’s bonus and your initial contribution.

For more information on how this scheme works, and what returns you can expect from your initial investment, read our guide.

Otherwise use one of our preferred investment platforms, Hargreaves Lansdown, to open your LISA today.

Other ways to save for your deposit

If, for whatever reason, you are unable to qualify for a Lifetime ISA then there are other means to invest your money.

Since saving for a house deposit is likely to be a mid to long-term goal, you can consider a fixed-rate bond. Fixed-rate bonds can pay more in interest than other savings vehicles, but often restrict you to one initial deposit and most will not allow you to withdraw your cash before maturity.

Alternatively you can always invest your money rather than squirrel it in a savings account. While this can yield better returns than a fixed-rate bond it carries the risk that you can lose your investment, so think carefully before deciding if investing is right for you. 

The stock market

Thinking of investing in some of the world's biggest companies like Apple or Amazon? Read our guide to the stock market to find out how you can get started. 

How to find the best first-time buyer mortgage?

Once you have saved sufficiently for a deposit on your new home it is time to find a mortgage. To find the cheapest deals on the market, use our charts. Whether you are using a 5% or 10% deposit, our charts can provide the best rates on the market for several fixed term options.

Once you have found the best mortgage for you, use our mortgage repayment calculator to get an indication of how much your mortgage might cost each month.

FAQ

Do first time-buyers pay Stamp Duty?

First-time buyers do not pay Stamp Duty on any purchase up to £425,000.  For houses valued over this amount stamp duty will be payable. This is where it becomes more complicated, so first-time buyers can find out their Stamp Duty tax payments by using our calculator. It is worth noting that first-time buyers in Scotland and Wales have different rules, which are also explained on our calculator page.

Can I rent out my first home?

While you can rent out your first home it is always important to let your mortgage lender know in advance. Failure to do this could mean your lender may charge you for mortgage fraud. Once you have informed them, it is likely that your lender will switch your deal to a buy-to-let mortgage.

It is important to note that those buying their first home through the help of a LISA cannot rent out this property as their primary intention.

Should I add the cost of product fees to my mortgage?

Lenders may give you the option to add some or all of these fees to the cost of your mortgage rather than paying them upfront. While a few thousand pounds might not seem much as a percentage of your overall borrowing, it will increase the interest costs on your mortgage and therefore your monthly mortgage payment.

Disclaimer: This information is intended solely to provide guidance and is not financial advice. Moneyfacts will not be liable for any loss arising from your use or reliance on this information. If you are in any doubt, Moneyfacts recommends you obtain independent financial advice.

First Time Buyers door mat

At a glance

  • First, figure out how much you will need to save up for a deposit and how much you can afford to set aside every month.
  • Then, find the best savings account for your needs, including the Lifetime ISA for its Government bonus.
  • Keep saving until you reach your goal, checking house prices on a regular basis, and don’t forget about extra costs such as legal fees.

Moneyfactscompare.co.uk will never contact you by phone to sell you any financial product. Any calls like this are not from Moneyfacts. Emails sent by Moneyfactscompare.co.uk will always be from news@moneyfacts-news.co.uk. Be ScamSmart.

Moneyfactscompare.co.uk will never contact you by phone to sell you any financial product. Any calls like this are not from Moneyfacts. Emails sent by Moneyfactscompare.co.uk will always be from news@moneyfacts-news.co.uk. Be ScamSmart.