Top Tips for Saving for a Mortgage Deposit: A Guide for First-Time Buyers

If you’re a first-time buyer, saving for a mortgage deposit might feel like an overwhelming task, but with the right approach and some careful planning, it can be more achievable than you think. In this blog, I’ll share my top tips for saving for a deposit, and how you can get on the path to home ownership sooner than you might expect.

1. Set a Realistic Savings Target

The first step to saving for a mortgage deposit is understanding how much you need. In the UK, most lenders will require at least 5-10% of the property’s purchase price as a deposit. For example, if you’re looking to buy a property worth £200,000, you’ll typically need between £10,000 and £20,000.

However, saving a larger deposit—around 15-20%—can help you secure a better mortgage deal, with lower interest rates and potentially lower monthly repayments. Once you have a target in mind, you can start planning how to reach it.

2. Open a Lifetime ISA (LISA)

A Lifetime ISA is a fantastic way for first-time buyers to save for a deposit. You can open a LISA if you’re aged 18-39, and it allows you to save up to £4,000 per year. The best part? The government will give you a 25% bonus on your savings, up to a maximum of £1,000 a year. So, if you save the full £4,000, you’ll have £5,000 at the end of the year!

However, there are a few rules to keep in mind:

• The funds in your LISA must be used to buy your first home or saved until you’re 60.

• The property you buy must cost £450,000 or less.

The LISA is a great way to boost your savings, and I recommend opening one as early as possible to take full advantage of the government bonus.

3. Create a Saving for a Mortgage Deposit plan

Once you have your target and your savings account set up, it’s time to create a plan. Break down your savings goal into smaller, manageable amounts. For example, if you need to save £15,000 over three years, that works out to £5,000 per year or approximately £417 per month.

Consider your monthly income and expenses, and see where you can cut back. Setting a clear budget can help you stay on track, and automating your savings by setting up a direct debit to a savings account each month is an easy way to ensure you don’t forget to save.

4. Review Your Expenses and Cut Unnecessary Spending

The Boomer generation are constantly telling First Time Buyers to stop having a daily coffee from Costa, and you will soon have a deposit for a house. This is obviously ridiculous, however it is a good idea to take a look at your current spending and identify areas where you can cut back. Start by categorising your spending into essentials (e.g., rent, bills, groceries) and non-essentials (e.g., subscriptions, eating out, entertainment). While you don’t need to cut out all non-essential spending, even small adjustments can add up.

For example:

• Cancel unused subscriptions

• Cut back on takeaways or eating out

• Review your energy bills

The money saved from these small changes can be redirected into your mortgage deposit fund.

5. Save Any Windfalls

It’s tempting to splurge when you receive a bonus at work, an inheritance, or even birthday money. But these unexpected windfalls can make a significant difference to your deposit savings. Whenever you receive any extra income, consider putting a portion (or all) of it straight into your deposit savings. This can give your savings a much-needed boost without impacting your day-to-day budget.

6. Take Advantage of Bank of Mum and Dad

Many first-time buyers turn to family for help with their deposit, often referred to as the “Bank of Mum and Dad.” If your parents or other family members are in a position to help, they may be able to gift or loan you money to boost your savings.

Just remember, if it’s a loan rather than a gift, the lender will need to be informed, and this could affect how much they are willing to lend you. It’s also a good idea to have a clear agreement in place if you’re borrowing from family.

7. Boost Your Income

If possible, consider ways to increase your income to accelerate your savings. This could be through:

• A part-time job: Even a few extra hours a week can make a difference.

• Freelance work: If you have a skill such as writing, graphic design, or tutoring, consider offering your services as a freelancer.

• Selling unwanted items: Clear out your home and sell unused items online. It’s a great way to declutter and add to your savings.

Every little bit of extra income can help you reach your goal faster.

8. Be Patient and Stay Motivated

Saving for a deposit can take time, especially if you’re aiming for a larger sum to secure a better mortgage deal. It’s important to stay motivated and remind yourself of your goal. Consider setting milestones along the way and reward yourself when you reach them (without overspending, of course!).

Tracking your progress can help keep you focused. There are several apps available that can help you monitor your savings and give you a clear picture of how far you’ve come.

Final Thoughts

Saving for a mortgage deposit as a first-time buyer in the UK can be challenging, but with the right planning and determination, it’s definitely achievable. Start by setting a clear goal, take advantage of government schemes like the Lifetime ISA, and consider where you can cut back on expenses or boost your income.

At Optimus Mortgages, we specialise in helping first-time buyers navigate the mortgage process and find the best deals based on their unique circumstances. If you’re ready to start your home-buying journey or want more advice on saving for a deposit, we’re here to help. Reach out today for personalised guidance and support.

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