The Complete Guide for Raising a Deposit as a First-Time Buyer

For all the doom and gloom you may have read about the difficulties of first-time buyers getting onto the property ladder, there is evidence of their numbers growing. In this guide, we will help you to understand the deposit for a first-time buyer.

A story in the Telegraph newspaper on the 11th of August 2018, for instance, reported that the number of first-time buyers in the first half of the year had reached a 12-year high of 175,000 – more than double the number of first-time buyers recorded in the first half of 2009.

One of the major obstacles for anyone wanting to buy their first home, of course, is the size of the deposit likely to be required – the national average currently stands at some £33,000. So, how might you lay your hands on anything like this amount of cash? Our Guide to Raising A Deposit For First Time Buyers will show some of your options.

Post Topics 

What is the deposit for a first-time buyer?

How much deposit do you need?

What are the latest updates for first-time buyer mortgages in the uk?

Raising the deposit

Help from the Bank of Mum and Dad

Next Steps

FAQs

What is the deposit for a first-time buyer?

The deposit for a first-time buyer is the amount of money that a buyer needs to save up in order to secure a mortgage and purchase their first home.
The size of the deposit can vary depending on the property value and the lender’s requirements. Generally, first-time buyers are expected to provide a deposit of at least 5-10% of the property value, although some lenders may require a larger deposit. For example, if the property is valued at £200,000, a 5% deposit would be £10,000, and a 10% deposit would be £20,000. It’s important for first-time buyers to save as much as possible for a deposit in order to secure a better mortgage deal and reduce their monthly mortgage payments. If you are interested, you can contact a specialist mortgage broker for your mortgage application.

How much deposit do you need?

The Consumers’ Organisation’s Which? magazine suggests that you need a deposit equivalent to at least 5% of the purchase price of the home you want to buy. If the home costs £250,000, therefore, you need a deposit of at least £12,500.

But it is essential to stress that the figure of 5% is the bare minimum. The larger the deposit you have to offer, the less you need to borrow, the greater your chances of success in securing the mortgage you need, and the more favourable rate of interest you are likely to be offered by your mortgage lender.

Mortgage lenders take a whole host of factors into consideration when deciding your mortgage application:

• your earnings – and that of your spouse or partner, if you are looking for a joint mortgage;
• not only the types of jobs you have, but the longer-term security of that job and future career prospects;
• your ages – the average age of the first time buyerA borrower purchasing their first property. is currently 30, said the Telegraph newspaper on the 27th of January 2018;
• the location and value of the property you intend to buy; and, of course
• the amount of the deposit you have to put down – the larger the sum, the greater your commitment to the purchase of the property.

What are the latest updates for first-time buyer mortgages in the uk?

• The government’s Help to Buy equity loan scheme has been extended until the end of 2023. This scheme allows first-time buyers to purchase a new-build home with a deposit of just 5%. The government will provide an equityThe difference between the value of the property and the amo... loan of up to 20% of the property value, which will be interest-free for the first five years.
• The Bank of England has raised interest rates four times since December 2021. This has made it more expensive for borrowers to get a mortgage, but it has also helped to slow down the rate of house price growth.
• The number of first-time buyers entering the property market has fallen in recent months. This is likely due to a combination of factors, including rising house prices, higher interest rates, and the cost of living crisis.

Despite the challenges, there are still some good deals available for first-time buyers. It is important to shop around and compare different mortgages before making a decision. You should also get professional advice from a mortgage advisor to ensure you get the best deal for your needs.

Here are some tips for first-time buyers:

• Start saving early. The more you can save for a deposit, the better your chances of getting a mortgage.
• Get your finances in order. Before you apply for a mortgage, make sure you have a good credit score and a steady income.
• Shop around and compare different mortgages. There are many different types of mortgages available, so it is important to find one that suits your needs.
• Get professional advice. A mortgage adviser can help you understand the different types of mortgages available and choose the right one for you.

Raising the deposit

So, how can you raise more than at least £10,000 as first-time buyer mortgage deposit?

Your savings

• saving for your first home comes at one of the least convenient times in your life;
• you – and your partner – are likely to be just starting out in your careers and have the salaries to match;
• you may already be paying a large proportion of your salary in rent; and
• kitting out a rental home to any level of comfort is probably taking care of the rest of your earnings – savings are extremely difficult to make;

Government schemes

• the government runs a number of Help to Buy schemes in support of first time buyers trying to gain their first foothold on the housing ladder;
• with a Help to Buy ISA, for example, the government adds an extra £50 for every £200 you save each month (up to a maximum of £3,000);
• a Shared OwnershipA scheme where a borrower purchases a share of a property an... scheme is available to help those first time buyers purchasing a share in a property; and
• an Equity Loan scheme, which grants an interest free loan (for up to five years) on 20% of the cost of your first home – with this help to buy deposit, therefore, you might be able to afford a 25% deposit by contributing just a further 5%.

Gifted deposits

When a member of your family makes a present of the money for the whole or part of your deposit, that is known as a gifted deposit – and these may also be gifted by friends (although the latter might be viewed less favourably by lenders).

Anyone gifting a deposit in this way must understand that it in no way results in their gaining any financial interest in the property and that they have no right to recover any such gift. Independent legal advice, therefore, needs to be sought by anyone considering gifting a deposit. If you want to take a legal charge on the property to ensure that your loan is repaid when the property is sold, you again need to take legal advice.

Mortgage lenders offer the same product to those who offer a gifted deposit from a family member – although many are circumspect about gifts from friends or other third parties.

The individual or individuals gifting the deposit must complete a letter to that effect – or sign a form provided by the mortgage lender – for confirmation of the source of the funds.

Gifted deposits may be combined with the first-time buyer’s own funds or those made available under the government’s Help to Buy scheme.

Help from the Bank of Mum and Dad

According to Metro newspaper on the 29th of May 2018, 27% of all home buyers in the UK received financial help by way of gifts from family or friends – a percentage which has increased from the 25% of all home purchases the previous year.

Currently, such help – from parents, siblings, aunts and uncles, grandparents, landlords and even non-relatives such as friends, or all sources combined – amounts to a generous average contribution of some £18,000 towards the purchase of a first home says the article.

Currently, there are no immediate tax implications on parents who gift money. However, the death of one of the parents within seven years of giving a gift (over £3,000) may be subject to Inheritance Tax.

An alternative to gifting the money is a loan – on which the parent charges less than the market rate of interest in order to help you out. It makes sense for both parties if you ask your solicitor to draft a simple promissory note formalising any such arrangement.

Alternatively, ask your solicitor to draw up a deed of trust by which you (as the first-time buyer) agrees to repay the loan you have made when the property is sold.

Guarantor mortgaged

Parents can also help a child buy their own homes without directly lending them money by acting as guarantors on their mortgages.

As a guarantorA person who guarantees to repay a mortgage if the borrower ..., the parent would have to agree to cover any monthly mortgage payments linked to your home if you were unable to do so.

This means the parent’s income is taken into account when agreeing on a mortgage deal, potentially allowing you to borrow more.

Inheritances and trust funds

Some first-time buyers may also be fortunate enough to have assembled the necessary deposit from an inheritance or as beneficiaries of a trust fund.

Borrowing your deposit

The purchase of a first home already involves your taking on a massive debt – by way of a mortgage – so you do not really want to take on a further commitment by borrowing your deposit. Sometimes, though, you may have very few options.

Potentially borrowing an unsecured loan to get the deposit is a consideration. If both the mortgage and loan are affordable, then some first-time buyer mortgage lenders allow this. We do not typically recommend this, but if that is the only option available, we can look at this.

Next Steps

Although FTB mortgages – and the FTB mortgage deposit you will require – remain a major challenge for those hoping to get their first foot on the housing ladder, there remain a number of ways in which the necessary funds may be raised.

Once you are ready to proceed with your first-time buyer mortgage, we will be able to find your ideal, affordable mortgage, so you can make those first steps on the property ladder.

FAQs

Can I get a mortgage as a first-time buyer in the UK?

Yes, you can get a mortgage as a first-time buyer in the UK. In order to qualify for a first-time buyer mortgage, you will need to meet certain criteria set by the lenders, such as having a good credit score and sufficient income to cover your monthly payments. You will also need to provide proof that you have saved up enough money for a deposit, usually at least 5% of the purchase price of the property.

What are the options for raising a deposit as a first-time buyer?

The most common options for raising a deposit as a first-time buyer include gifts from family or friends, loans from parents, inheritances and trust funds, and borrowing your deposit. Each option has its own advantages and disadvantages so it’s important to consider all of them carefully before making a decision.

What is a mortgage guarantee scheme?

A mortgage guarantee scheme is a government-backed scheme that increases the availability of mortgages for first-time buyers, who typically have more limited access to credit and therefore face higher borrowing costs. Under this mortgage guarantee scheme, the government provides lenders with a guarantee for up to 15% of the loan amount, meaning that if a borrower defaultsMissed payments on credit accounts, which can affect a borro... on their mortgage, the lender will be reimbursed for some or all of their losses. If you are interested in getting a mortgage as a first-time buyer, you can always contact a mortgage adviser to help you with your application process.

Can I get a mortgage as a first-time buyer without a deposit?

In some cases, you may be able to obtain a mortgage as a first-time buyer without a deposit. Some lenders offer ‘guarantor mortgages’ which allow the borrower to apply for a loan using someone else, such as their parents, as collateral. This means that if the borrower misses any monthly repayments, the guarantor will need to make them instead.

Alternatively, some lenders also offer ‘100% mortgages’ which allow the borrower to borrow the full purchase price of the property without having to provide a deposit. However, it is important to note that these are usually much more expensive than other types of mortgages and should only be considered as a last resort.