How much is the average first time buyer deposit?

How much is an average deposit for a first-time buyer, and what does it mean when arranging finance for your new property? A deposit usually takes the form of a mortgage but as with most high-value credit agreements (such as a new car for example), prospective new homeowners are required to place a deposit against any mortgage.

As a first-time buyer, you won’t get the deposit back when you’ve bought the house or if you move. Instead, what you’re doing is paying a small portion of the overall property price with your mortgage provider lending you the rest. Over time, you will gradually pay back the full amount of the loan to your mortgage lender, depending on the terms you’ve agreed. As part of the mortgage application process, your mortgage lender will need proof that you have the funds saved. When you exchange contracts, you will pay that deposit to the conveyancer/solicitor. Then on completion, the deposit will be combined with the money you’re borrowing from your mortgage lender and paid to the seller of the property you’re buying.

Finding your deposit

Your deposit is often sourced from funds released from the sale of an existing property, but what if you’re a first-time buyer? In this feature, we look at the trends for first-time buyer deposits, as well as helping you make sure you get a great deal on your new home.

Many first-time buyers ask whether the deposit can be funded by a loan, but this really depends on the type of loan, the risk appetite of your mortgage lender, and how much you want to borrow. 

According to Which?, lenders will ask you to state the source of your deposit and will usually insistent that it comes from a ‘non-refundable’ source i.e. your savings or a gift from family. However, some lenders may accept a deposit funded via a loan if that loan is repayable upon the sale of the property, but it may affect the amount of money they are prepared to lend. It’s worth speaking with an independent mortgage broker or mortgage adviser about your options. 

What size deposit will you need?

According to UK mortgage lender Halifax, the minimum mortgage deposit you’ll need depends on the mortgage lender you use. Mortgages are generally available at up to 95% loan-to-value, meaning it’s possible to get on the property ladder with a deposit of 5% of the property price.

However, the minimum deposit you’ll need generally ranges from 5% to 20% of the property’s purchase price. By way of example, here’s how much money you’d need to put down on a £200,000 property, based on different deposit sizes:

• 5% deposit: £10,000
• 10% deposit: £20,000
• 15% deposit: £30,000

Saving for a deposit can take time and considerable sacrifice. Data analyst, Statista advises that ‘in 2021, an average first-time buyer deposit in the UK was about 53,935 British pounds, but in the most expensive region, Greater London, the deposit amount was more than double’. As you may expect, there are enormous differences between cities, boroughs and counties and with the average house in the United Kingdom (UK) costing over £256,000 (March 2021), it is probably no surprise that the average age of a first time buyer in the UK was 31 years old. 

So while the minimum deposit you’ll need is 5%, there are plenty of reasons to save more if you can, according to Which?:

• Cheaper monthly repayments It might sound obvious, but the bigger your mortgage deposit, the smaller your loan will be and the cheaper your monthly repayments
• Better mortgage deals A larger deposit will also make you less risky for mortgage lenders and, as a result, they’ll generally offer you lower interest rates. For example, 90% mortgages are generally around 0.7%-1% cheaper than 95% deals
• Improved chance of being accepted All lenders conduct affordability checks to work out whether you can afford the mortgage repayments, based on your income and outgoings. If you only put down a small deposit, it’s more likely you will fail these checks because you’ll need to spend more on your mortgage each month
• Bigger buying budget Lenders typically offer a loan of up to four and a half times your annual salary, so if your salary is relatively low and you can’t borrow enough, you might need a larger deposit just to make up the value of the property
• Less risky If you own more of your home outright, you’re less likely to fall into negative equity, where you owe more on your mortgage than your property is worth. Being in negative equity can make moving house or switching mortgage difficult.

Saving up for your deposit

Saving up for a deposit can be challenging, with many prospective buyers turning to family for support. But there are options beyond the Bank of Mum and Dad that you may wish to consider. 

With a Help to Buy equity loan, you put in a deposit of 5%, while the government lends you up to 20% in England and Wales or 40% in London, and you get a mortgage to cover the rest. In Scotland, the First Home Fund works in a similar way.

Then there’s shared ownership, where you buy a share of the property and pay rent on the remainder

You might also think about buying a house with your friends or like so many first-time buyers these days, asking your parents, grandparents, or other family members for help either in the form of a gift or a loan. Speak with your mortgage adviser or a mortgage broker about the possibilities and risks associated with each option.