First-time buyer deposit

Who is a first time buyer?

A person is generally classified as a first time buyer if they’ve never owned a property in the UK or abroad. This even includes inherited property.

If you have inherited a property, you are no longer classed as a first time buyer, even if you never live in the property or only inherit a tiny share.

Where to start as a first time buyer?

It’s a good idea to put together a budget before looking for your first home. Think about how much you can afford to pay every month, remembering you’ll still have to cover everyday costs such as gas, electricity, and food.

You can use free tools to get an estimate on your budget, but remember that you will need to use this as a guideline and tailor it to your specific circumstance.

It is also good practice to speak to a specialist mortgage expert about your budget when looking for your first home, as they can help with advice about your borrowing figure, as there is a possibility you may not be able to get the full amount you are after. This could drastically change the type of properties that you are looking at.

How much deposit do I need as a first time buyer?

Generally, you need to try to save a minimum of 5% of the cost of the home you’d like to buy.

For example, if you want to buy a home with a value of £200,000, you’ll need to save at least £10,000 (5%) for the deposit.

Saving more than a 5% deposit will give you access to a wider range of cheaper mortgage products with a lower interest rate, you could potentially even secure a higher lending figure with more options.

Can I buy a property with no deposit?

The short answer is no. Contrary to popular belief, there are extremely limited possibilities nowadays where you can use a family member as a guarantor, however, the vast majority of lenders will accept a deposit that has come from a family member in the form of a gift (it is not to be repaid to the giftor).

There are government schemes such as the Help to Buy Scheme and Shared ownership to help first time buyers on the property ladder.

And if you live in a council property, there is the possibility of purchasing this property through the right to buy scheme, which you can view here - https://www.gov.uk/right-to-buy-buying-your-council-home/discounts.

Help to Buy scheme

Help to Buy could make it easier for you to get a mortgage with a small deposit. It provides an equity loan that lets you borrow money for a deposit interest free for five years (up to 20% of the property's value or 40% in London).

You then put down a further 5% deposit from your own money and get a mortgage for the rest of the price. This applies to new-build homes in England only, but there are separate schemes for those living in Wales, Scotland, and Northern Ireland.

This scheme will no longer be available to any new applicants as of the 31st of October 2022. So, it is worth looking into this sooner rather than later.

Shared Ownership

Shared Ownership mortgages allow you to buy a percentage of a property, usually between 25% and 75%. The rest is owned by your local authority or a housing developer, and you will pay rent on the percentage of the property they own.

This means you would have a much smaller mortgage resulting in lower monthly payments, and you will need a smaller deposit, as your deposit is based on the share you purchase.

A deposit for a shared ownership mortgage is typically between 5% and 10% of the value of the share you’re buying – not the full purchase price. Here's an example:

If you planned to buy a 50% share of a property worth £200,000, the value of your share would be £100,000. So, you’d only need £10,000 to put down a 10% deposit or £5,000 for a 5% deposit, having a larger deposit will drastically increase your options, often resulting in lower rates and higher borrowing.