Saving money for a deposit

To get a good mortgage, you often need a dauntingly big deposit. Follow our steps to make it more manageable and turn your home-buying dream into reality.

Step 1 – Weigh up your options

Did you know?

Four out of five Britons would prefer to own their home rather than rent. An estimated eight out of 10 under-30s rely on help from parents to buy their first home. (Source: The Council of Mortgage Lenders)

The average first-time buyer puts down a 20% deposit on their first home, which could mean finding a daunting £20,000 or more. But the supply of 90% mortgages is increasing and there are a variety of other ways to reduce your payments:

  • Bank of mum and dad. Parents may help with cash gifts, informal loans, or more formal arrangements with the mortgage lender to provide part of the deposit or act as guarantor (in which case, they become liable for paying the mortgage if you can’t).
  • Buy with friends or family. You might be able to club together to buy a home jointly, but think through how this will work later on if one of you wants to sell their share.
  • Shared ownership. If you currently rent a council or housing association property and have a household income of less than £80,000 (outside London) or £90,000 (inside London), you may be eligible to buy part of a home and rent the rest. This reduces the size of the mortgage and deposit you need, so you pay less for the mortgage but also have to pay some rent.
  • Help to Buy and other shared equity schemes. These help you buy a new-build home. You typically need a deposit of only 5% and the government or the developer lends you the rest of the deposit – up to a further 20%. Under Help to Buy this loan is free for the first five years but you need to plan how you will pay the yearly fee that kicks in from Year 6 onwards. It is only available for new-build homes.
  • Help to Buy Mortgage Guarantee scheme. Available now to help you buy a new-build or older home, you put down a deposit of between 5% and 20%.
  • Some mortgage deals also cover your valuation and legal fees, reducing the amount of up-front money you need to find on top of the deposit.

Checking house prices in the area where you want to buy, and deciding whether any of the options above could be for you, will help you work out the size of the mortgage deposit you’re going to need.

Find out about Help to Buy and other housing schemes

Step 2 – Work out how much to save each month

Once you know the amount of deposit you’ll need, make a plan to reach this goal. Regular saving is more effective than relying on irregular one-off sums. How long it will take depends on how much you can afford to set aside each month. Use our Savings calculator to help you do the sums.

Be realistic about how much you can afford. For example, suppose you want to buy in three years’ time and will need £10,000: you’ll need to save around £265 a month. But, if you only feel comfortable saving £150 a month, you will need to plan on buying in just over five years’ time. This may seem a long wait, but it is better than trying to save too much and giving up altogether.

Step 3 – Get started

Top tip

Set up a regular payment (direct debit or standing order) to automatically transfer a set amount into your savings each month.

Strike while the iron’s hot! Decide where to stash your savings. Maybe you already have an online bank account that lets you set up a separate pot for your goal. Otherwise, open a separate savings account.

You could opt for an instant access account. But, since it will most likely be some years before you are ready to buy, you may want to look at accounts that tie up your money but offer better interest.

Find out about Direct debits and standing orders

Read our guide Cash savings at a glance for ideas

Price comparison websites

Comparison websites are a good starting point for anyone trying to find a savings account tailored to their needs.

We recommend the following websites for comparing savings accounts:

Remember:

  • Comparison websites won’t all give you the same results, so make sure you use more than one site before making a decision.
  • It is also important to do some research into the type of product and features you need before making a purchase or changing supplier.
  • Find out more in our guide to comparison sites.

Step 4 – Watch your savings grow

Review your savings account at least once a year to check you are getting the best rate of interest. Make sure you use your yearly cash ISA allowance so that you don’t pay tax unnecessarily. Many ISAs tempt you with a bonus for the first few months or year but then fall back to dismal rates.

What to do next

  • Check whether you can reduce the deposit you need, for example, through a Help to Buy scheme or family support.
  • Open a savings account if you don’t already have one – go online or pop into your bank or building society.
  • Set up a regular payment into your savings account every month.Use this downloadable template (DOC 25KB) to send a standing order instruction to your bank.

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