How long it really takes to save a deposit for your first home

10 February 2024 , 07:00

468 0

How long would it take to save a mortgage deposit for a house in the UK right now? (Image: Getty Images/iStockphoto)

It takes a lot of saving and hard work to be able to buy a house in the UK - but exactly how long does it take?

Something you need if you want to buy a house is a mortgage deposit - this is the cash deposit that you pay upfront when buying a house, your mortgage is then what you borrow to cover the rest of the cost. It’s best to have as big a deposit as possible when buying a house because you’ll have to borrow less and you will be able to access cheaper mortgage deals.

With house prices being at the highest they have ever been, Alice Haine, personal finance analyst at Bestinvest, said Brits saving for a first home have an "enormous challenge" to raise the sums. Usually, you will need a deposit of 10% of the property price - although lenders are now mortgage deals to those with deposits of only 5%. However, according to the Mortgage Advice Bureau, a 25% deposit is where you will start to see more preferential interest rates opening up.

According to recent data from the UK's House Price Index from November 2023, the average house price in the UK currently sits at £284,950. This means for a 10% deposit you would need £28,495, and for a 5% deposit, you would need £14,247.50. A 25% deposit would sit at £71,237.50.

Data from the Office of National Statistics (ONS) found that a typical household saved around £180 per month. Whilst the average saving sat at around £450 a month. This figure is higher due to the small number of households with very high savings rates.

London flat for rent for £1,400 a month with bed tucked away in kitchen cupboard

With all these elements, analysis from Alice Haine finds that those putting away £180 each month into the average easy access savings account paying 3.17% would need to be saving for six years to reach a 5% deposit. It would take someone 11 years to save enough for 10% and over 22 years to reach a 25% deposit. For those able to put away £450 a month, it would take two and a half years to collect enough for a 5% deposit, four years and 11 months to reach 10%, and 11 years to reach 25%.

Alice noted that there was the Government's Lifetime ISA (LISA) scheme which is "specifically designed" to help young people get onto the property ladder quicker. She explained: "Savers aged between 18 and 39 can contribute up to £4,000 a year into a LISA, and the government will top their contribution up by 25%, which is effectively ‘free cash’ bonus of up to £1,000 a year.

"The total amount of bonuses for someone who opened an account at 18 and maxed it out until they hit 50, paying in a total of £128,000, is £32,000. The pot must go towards either the purchase of your first property which is capped at £450,000 in value or be held until you are at least 60. If withdrawn for anything else you could be slapped with a 25% penalty."

Alice highlighted that people putting their savings into a LISA could reach their deposit goal "much faster". For someone putting £180 into a LISA, they could hit their 5% deposit in less than five years versus six in a regular easy access savings account. She added: "A couple buying together can double up and max out two LISAs speeding the process up even more."

For those who can put away more money each month due to the £4,000 yearly cap. Alice explained: "In this instance, they could save £333 a month into a LISA to secure the maximum bonus possible and invest the remaining £117 in a stocks & shares ISA to ensure they hit their goals as fast as possible. Someone saving £333 for five years in a LISA could accumulate around £27,111 - that’s from an investment of £19,980 and a Government bonus of £4,995."

Alice noted that there were other options to support those looking for a home including the Government-backed Mortgage Guarantee Scheme which is helping increase the number of 5% deposits on the market. The scheme offers lenders the option to purchase a guarantee on mortgages where a borrower has a deposit of only 5% and applies to homes costing less than £600,000. But again, the rates are more expensive than compared to those with higher deposits. This means you'll pay more overall due to higher interest.

Shared ownership is also popular, as the scheme allows first-time buyers to purchase a share in a property typically from the council or a housing association, and then pay rent on the remaining share. Buyers can purchase a 25% to 75% share and if they take out a mortgage, they will also need to pay a deposit, typically between 5% and 10% of the share they are buying. But the scheme can be restrictive when you come to sell - and of course, you're still paying rent.

Alice said: "Inflation is on the retreat and mortgage rates are easing amid expectations or interest rate cuts this year, so buying conditions are improving in general, delivering a boost to affordability levels. It means first-time buyers should have a better chance of meeting lenders’ affordability criteria and in turn, secure more favourable mortgage terms as the year progresses. While it will take a long time to build up a deposit for a home, consistency and patience are key. Saving every month and topping up where possible will ensure the process happens as fast as it possibly can."