Saving up to buy a house can be disheartening, especially if you don’t have much in the way of a deposit.
If we then consider that the average house in the UK costs £215,897, up 0.5% since December and 1.9% than the year before, according to Nationwide Building Society, it’s enough to make us give up altogether.
It’s worth noting that that the Office for National Statistics (ONS) puts the average price for a home in the UK even higher, at £235,298, with prices having risen 2.2% in 2019 compared to the year before.
And let’s not even get started on the difficulties of finding an affordable home in the capital, with many people resorting to renting overpriced flats.
The trick to overcoming the deposit hurdles is to arm yourself with as much knowledge as possible.
With that in mind, we find out how much money you actually need to buy a flat or house, if there are ways around hefty deposits (is haggling for property a thing?) and how to get started.
Don’t panic, we’ll do this together.
How much money do you need to buy a house in the UK?
Unfortunately, there is no cut-and-dry answer, as it depends on details such as what kind of home you buy (shared ownership, new build, etc.) and whether you’re a first-time buyer, as there are schemes in place to help you get onto the property ladder.
Your credit history and choice of mortgage lender also plays a part.
We asked Simon Gammon, managing partner at Knight Frank Finance, to break it down for us.
‘Deposit requirements when buying in the UK have lessened over the last few years, as confidence has returned following the 2008 financial crisis,’ he says.
‘An increasing number of lenders will allow as little as 5% to be contributed by the buyer, however affordability and credit checks are more stringent than if you were to put down a larger deposit.
‘You also tend to find high loan to value mortgages are less available as the purchase price increases, meaning buyers of higher value properties struggle to borrow 95%. Although rates will be higher for these products, the difference between 95% and lower loan to value options is currently not significant.
‘Restrictions on LTV [loan-to-value ratio] also tend to apply to new build homes, with the widest range of mortgages being available on a new build flat from 85% and below.
‘For buyers who want to stretch their borrowing capacity as far as possible, a deposit of at least 15% is desirable, providing access to more flexible lenders and criteria.’
In simpler terms, the higher deposit you have saved up, the better chance that you’ll be granted the mortgage you need for the home, and the better interest rates are available to you.
That’s not to say that 5% isn’t enough, but you might need to restrict yourself to a certain type of property (so not that dreamy Victorian five-bedroom in Chiswick).
Mortgage calculator: how much can you borrow?
Daniel Hegarty, CEO and founder of Habito, a free online mortgage broker, explains how much you can borrow in relation to your salary and presents a few concrete examples.
‘With house-price growth consistently outstripping wage growth, it can often seem impossible for a young person to buy their own home,’ he says.
‘Mortgages typically have a lending limit for between 4-5x someone’s salary, so if you earned £30,000 – you could borrow around 4x this, so £120,000. Most homes are much more than this, so buyers need a bigger deposit to make up the difference.
‘In London last year, the average rent was £289 more a month than average mortgage repayments. With the cost of the average UK home around £233k, this means a first-time buyer would need to save more than £23,000 if they want to buy with a deposit of 10%, leaving them with a mortgage worth 90% of the property’s value.
‘But, it’s important to remember that there’s really no such thing as averages when it comes to house prices. The cost of a first-time property varies significantly across the UK.
‘In London, it’s £453,385 – whereas the average first-time buyer property in Liverpool cost £122,700. This has a huge impact on the amount needed to save, and you can see this in the age of those getting onto the housing ladder; 33 and 25 in London and Liverpool respectively.’
Many banks, and savings and property sites have free mortgage calculation tools that you can use online to get an estimate of how much you’ll be able to borrow (and in turn, how much you need in the way of a deposit).
Bear in mind that these are rough figures, so if you want a more exact amount, book a meeting with a mortgage advisor.
Are you looking at a sad piggy bank with not nearly enough money for a house deposit?
There might still be a way for you to fulfill that distant dream of your very own bricks & mortar – if you’re willing to compromise.
‘Saving up a deposit for your first home can be one of the biggest challenges facing first-time buyers, but the good news is that there a plenty of options for those looking to step onto the ladder to reduce the size of the deposit they need,’ says Kevin Roberts, director at Legal & General Mortgage Club.
‘Deposits are calculated as a percentage of a property’s overall value, so the first thing for any first-time buyer to consider is finding a property you can really afford. Speaking to a mortgage adviser is a sensible first step to take, as they’ll be able to give you an indication early on of the type of property that may be suitable.
‘That might mean having to look a bit further afield than your local area or perhaps asking the Bank of Mum and Dad for a helping hand.’
If you don’t have anyone to help you fork up the cash, there are still other options available, including the aforementioned LTV mortgage or getting a guarantor.
Kevin says: ‘More lenders are offering 90% and 95% LTV mortgages today, which mean you can step onto the ladder with as little as a 5% deposit. In some cases, lenders are accepting even smaller deposits, as little as 2%, to help first-time buyers make home ownership a reality.
‘Another option for first-time buyers is to use a family member as a guarantor. Lenders are increasingly finding ways to reduce the burden of deposits for first-time buyers and “family mortgage” products are one such example.
‘In this instance, the guarantor, such as a parent, will put forward a contribution of up to 10% from their savings, which is then held by the lender for a fixed period, or until the buyer has repaid the required amount through their monthly payments. Halifax’s Family Boost Mortgage and Barclay’s Springboard are just some of the options.
‘Finally, you can also take advantage of a range of Government-backed schemes to help you take your first step – the Help to Buy scheme isn’t the only option.
‘With Shared Ownership, you can purchase a share of a property with a mortgage. The remainder is owned by a registered third party, such as a local housing association to which you will pay rent each month, but you also have the option to staircase in the future – meaning you can buy a bigger share of the property.
‘Whichever of the schemes or products you choose, the most important thing to do is to speak to an independent mortgage adviser.
‘These experts in the market will be able to show you all the great options available, so you can find the right mortgage and make homeownership a reality.’
Some of the different kinds of Government-property schemes currently available
Help to Buy: for first-time buyers or people looking to buy a new-build home under £600,000. You need a 5% deposit.
Right to Buy/Right to Acquire: Available for tenants who live in local council homes/housing associations in England and Northern Ireland, giving them the opportunity to buy their property at a discount.
Shared Ownership: Gives you the chance to buy a share of a property, and increase your share over time. You need to have a household income of less than £80,000-£90,000.
Home Ownership for People with Long-Term Disabilities (HOLD): If you have a long-term disability and can’t use other schemes, you may be able to get assistance with buying any house through shared ownership in England.
Older people: Aged over 55? Once again, you can use shared ownership but have the benefit of not having to pay rent once you have acquired 75% of the shares.
Starter Home scheme: Applies to specific new-build homes that you can buy at a 20% discount, if you are aged under 40 years old. However, it was recently reported that the Government is yet to build these discounted new-builds, according to The National Audit Office in November last year.
Saving up money, especially a large sum, can feel like an insurmountable challenge, but in most cases it’s not impossible.
A good place to start is by getting your finances on track; make budget for the year, evaluate whether there are areas where you can cut down on costs and open up a savings account.
To help you on your way, we’ve created a month-by-month finance calendar, filled with advice from the experts.
You could also try our week-to-week saving challenge to put away £1,456 in 2020 or if you have a bigger budget to play with, why not try the fiver saving challenge, where you end up with an extra £6,890 in your account?
And remember, renting doesn’t mean that you’re ‘throwing money down the drain’ – it’s just your current situation on a very long journey, and you can still create a beautiful home for yourself.
News from The Metro