Saving for a house deposit can be a daunting prospect, especially for first time buyers. With property prices on the rise, it can feel like saving for a substantial sum is impossible. Yet, with careful planning and goal setting, it is entirely possible to save up enough money to secure your first mortgage.

The advantage of buying over renting is that money spent on a mortgage is invested in you, as you own the property. Even though it may be difficult to save up enough for a deposit, the return on your investment will be greater in the long run.

Mortgage Deposit

A mortgage deposit is the amount of money you pay upfront towards the full cost of a property, the remaining amount is usually covered by a mortgage. How much deposit you require will depend on the house price and your circumstances. Saving for a house deposit is an important step in the home buying process and with careful planning, you can make your dream of owning a property a reality. Getting onto the property ladder can seem difficult nowadays but there are ways to make this possible with careful planning and organising your finances.

If you have a larger deposit you will be more likely to get the mortgage you would like and more desirable monthly payments as this is more favourable for mortgage lenders, you will have a better mortgage deal range available to you.

Set realistic goals for yourself when saving

Set yourself a savings goal so you have an amount to aim for before a certain date. To make saving for your first home more achievable, break down your goal into smaller chunks and set yourself realistic targets. With a disciplined savings plan and budgeting, you will soon be able to see your deposit accumulate.

If you are saving money but have to transfer money back to yourself before payday (using a regular savings account) then the goals aren't realistic for you. It is always best to put away a reasonable amount of money each month to save for a deposit, so you won't be dipping into it at the end of each month to pay for everyday living costs.

It's also wise to set up an emergency fund in case of any unexpected costs during the home buying process, or other life events. This can help to reduce any stress associated with saving for a house deposit and give you financial security.

Different ways to achieve a deposit

The most traditional way to achieve your house deposit is by saving however this is not the only way. If you are struggling to save all or some of your deposit here are a few more options to achieve your deposit:

• Guarantor mortgage - a guarantor mortgage works by also securing a deposit against something belonging to the guarantor usually their home.  If you don't keep up with your repayments the guarantor is liable to make these repayments instead

• Family springboard mortgage -  You can obtain a mortgage without the need for an initial deposit if someone you know - such as a family member or helper - provides 10% of the property price for security. Provided you make your mortgage payments on time, they will get their money back within five years plus interest. However, if any payments are missed, it is possible that some of the money may be held for longer than five years.

• Life time ISA - A Lifetime ISA (LISA), created to assist savers in buying their first home or retirement, comes with a 25% bonus from the government on your contribution amount each tax year - up to a certain limit!

• Shared ownership - Shared ownership lets you buy part of a property and pay rent on the rest, which belongs to a housing association. As you are only buying part of the property this will reduce the deposit you require. For more information visit our article on shared ownership here

Guarantor Mortgages

If you opt for guarantor mortgages, the mortgage lender may accept a lower deposit, this means you may not need to save for as long as you originally expected which in turn means you will have your own place before you know it.

A family member will act as a guarantor for your mortgage payments and will take the responsibility of paying if you don't. However, this doesn't come without risk as the guarantor's assets could be on the line if mortgage repayments are missed.

Different types of savings accounts

There are a few types of savings accounts and each account has its own benefits, these benefits can include bonuses, flexibility and the ability to gain interest on what you have saved. With all savings accounts, you should shop around for the best interest rates.

Instant access savings account

With an instant access savings account you can withdraw money from your account just like you would from a current account – instantly and with no penalties. The main advantages of an instant savings account are:

• Setting up and managing your account is easy plus you'll get interest on the money you deposit.
• Make deposits to add to your savings whenever you want 
• Withdraw money without having to give notice
• A minimal investment is required to open up an account.

Regular savings account

A regular savings account is designed for people who want to save a regular amount of money on a monthly basis. Rather than putting in lump sums as and when, you’ll be required to deposit a small amount into your account each month. This is a good way to get your deposit savings.

Regular savings accounts do tend to come with terms and conditions, these typically include

• On a monthly basis, you are typically required to deposit a minimum amount.
• a maximum monthly deposit limit is usually set.
• Most regular savers only last for a limited period usually 1-2years
• Although some accounts may enable you to withdraw money, they could reduce your rate of interest; alternatively, other ones might not let you make any early withdrawals.
• If you fail to make the necessary deposit each month, certain banks may take action and close your account.

Lifetime ISA (LISA)

A Lifetime ISA (LISA), created to assist savers in buying their first home or retirement, comes with a 25% bonus from the government on your contribution amount each tax year - up to £4000. You must be 18 or over but under 40 to open a Lifetime ISA.

You can save up to £4,000 each year until you reach 50. You must make your first payment into your ISA before you turn 40. The government will add a 25% bonus to your savings, up to a maximum of £1,000 per year. This amount comes off your cash ISA allowance.

Your Lifetime ISA allows you to store cash or stocks and shares, or a mix of both. Once you turn 50 though, no more contributions can be made to the account, but any earnings will keep accruing interest or investment returns.

For more information on Lifetime ISAs visit:  www.gov.uk/lifetime-isa

Tips to help save your house deposit

To save money to purchase your first property, you may need to make some cutbacks in your everyday spending, those little treats here and there may need to be stopped for a while until you have your deposit saved up for your own home. The more expensive the home that you want to purchase, the bigger deposit you will need.

Different Methods of Cutting Costs

If you need to cut your costs to purchase your home sooner, here are some ways to do so:

1. Move to a shared house and your bills will be split with someone, even if this is a spare room in someone's house, this can save you money whilst you are saving for a deposit
2. Cancel any nonessential monthly direct debits
3. Live with a family member and split bills with them or pay board towards bills
4. Put some money in your savings account just after you have been paid every month and leave it in there
5. Use a lifetime ISA

It is always a good idea to have extra money saved for other costs such as moving costs, furniture and decorating costs, legal fees and possible mortgage arrangement fees. The earlier you start saving the better, whether it's a little or a lot.

If you are a first time buyer looking for a mortgage to purchase your first property, visit our first time buyer guide for 2023 here, or call us today on 0151 662 0188 or email [email protected]