Average first-time buyer deposit

The average UK first-time buyer deposit increased in 2020.

In 2020, a first-time buyer had to put down an additional £10,000 as a deposit, on average, relative to the previous year.

What has happened to first-time buyer deposits?

According to research, the average deposit paid by a first-time buyer in the UK rose to £57,278 in 2020. This was up from £46,449 the year before.

The average first-time buyer deposit rose by 25%, or £6,634, to £32,663 in Wales, which was higher than the national average.

Meanwhile, buyers in the North West saw the smallest rise in their deposits, paying on average £4,829 more than they would have paid in 2019, with a total deposit of £34,347.

Deposits in London are much higher than elsewhere, but they grew slower than the rest of the UK, rising by 18%, or £20,211, to £130,357.

Buyers in London paid the highest proportion of their home’s price upfront, with an average deposit of 27%. The deposits paid in the North West were the lowest in proportion, at 19%.

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UK House Price Increase and the Stamp Duty Holiday

According to data from the Office for National Statistics (ONS), average UK house prices reached a new peak of £250,000 in November, with London prices breaking through the £500,000 barrier for the first time.

A temporary stamp duty exemption, as well as pent-up demand following the market’s halt in early 2020, have fuelled demand, with increasing prices making it more difficult for those seeking to get on the property ladder.

Average first-time buyer deposits have risen from £11,000 to £57,000 due to rising house prices and a mortgage squeeze… but could 2021 be a better time to buy?

  • The average deposit put down by a first-time buyer increased 13% to £57,278
  • Buyers in London paid the biggest deposits at 27%, and North West smallest at 19%
  • The number of first-time buyers fell by 46,000, largely due to the pandemic
  • Thirty-one is now the average age that people in the UK buy their first home

Last year, the property market’s lockdown mini-boom, which sent house prices soaring, was bad news for first-time buyers.

The average first-time buyer deposit increased by nearly £11,000 to more than £57,000 last year, a 23 per cent rise against a backdrop of increasing house prices and a mortgage squeeze as banks and building societies tightened lending.

However, the Halifax index’s 6% increase in house prices last year was fuelled in part by the stamp duty holiday, scheduled to end at the end of March, and lenders are now starting to offer mortgages with more than a 10% deposit.

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Budget 2021 and mortgage guarantee schemes:

The introduction of a new mortgage guarantee scheme In his Budget speech on March 3, 2021, the Chancellor proposed a new mortgage guarantee programme for first-time buyers and home movers. The government would guarantee banks to enable them to sell 95% mortgages, enabling citizens to purchase a home with just a 5% deposit. New and existing properties valued up to £600,000 will be available for the programme, which will run from April 2021 to December 2022. Learn more about the 95% mortgage guarantee programme in our latest guide.

At present normal 95% mortgages without government backed schemes are available to all types of borrow from First Time Buyers to people who are moving home.

How much deposit do you need for a mortgage?

Technically, a mortgage can be obtained with a deposit of 5% of the property’s value. However, in today’s market, you might need as much as 10%, as many lenders have withdrawn their low-deposit offers due to economic issues brought on by COVID-19. This will soon change, as many major banks have agreed to offer new 95% mortgages, which will begin in April 2021. Here’s how much cash 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.

How much deposit will you need in cash terms?

There are two things to remember when calculating how much you’ll need to save for your mortgage deposit in cash terms: prices in your area on average Property portals like Rightmove and Zoopla, as well as talking to local estate agents, will give you a rough idea of local house prices. Keep in mind that the numbers you’ll see on portals and agent websites ask rates, which could be slightly higher than the properties’ true value. For more specific statistics, use the Land Registry’s price paying tool to see how many homes in the area have sold for.

How much can you afford in repayments each month?

Mortgage prices fluctuate often, and the best deal for you might not be the one with the lowest cost. Instead, you’ll have to consider upfront costs, early repayment penalties, and minimum and maximum terms. Using our mortgage sourcing tool, you will see what average mortgage rates are, and it will also tell you what the ratees will be, then monthly payments and the fees associated with that mortgage.

You can also use our mortgage repayment calculator to see how high your monthly payments would be based on different interest rates. If you can’t handle the payments on a low-deposit mortgage, you’ll need to save more money or look at services like Help to Buy or indeed try to extend the term of your mortgage over a longer period to reduce the payments.

Cheaper monthly repayments:

It may seem self-evident, but the larger your deposit, the smaller your loan would be. Your monthly payments would be less expensive if your debt is smaller. Better mortgage deals: a higher deposit makes you less risky for mortgage lenders, who can give you lower interest rates as a result. For example, 90% of mortgages are usually 0.7 to 1% less expensive than 95% of mortgages. Increased likelihood of approval: all lenders perform affordability tests to determine whether you can afford the mortgage repayments based on your income and expenses. If you just put down a small deposit, it is harder to pass these checks, and you’ll have to pay more per month on your mortgage.

Bigger buying budget:

Lenders usually provide loans of up to five and a half times your annual earnings, so if your income is low and you can’t borrow enough, you may need a bigger deposit to cover the property’s value. Less risky: if you own more of your house outright, you’re less likely to slip into a state of “negative equity,” in which you owe more on your mortgage than the value of your home. Negative equity can make it difficult to sell a home or move mortgages.

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What are 100% mortgages?

A 100% mortgage is a loan for the property’s entire cost, which means you don’t have to put down any money. The only type of 100% mortgage available right now is a guarantor mortgage, in which a family member assumes some of the risks of your loan by pledging their home or savings as collateral if you default on your payments. There are only a few of these offers on the market, and they come with a high risk of negative equity (owing more on your mortgage than your home is worth), so you and your family should seek independent legal advice before applying.

Exchanging deposits

When you’re ready to exchange contracts on a home, you’ll normally pay a fee as a condition of legally agreeing to the purchase. The typical sum for an exchange deposit is 10% of the property price, but if you want to buy a 5% deposit, your solicitor or conveyancer will normally work something out for you. Let them know as early as possible in the purchase process so that the seller’s conveyancer is aware of the situation. Some people who wanted to use the bonus received on their Help to Buy Isa at this stage of buying their first home have found the exchange deposit to be a stumbling block. Since the bonus is only paid upon completion, you won’t be able to use it as an exchange deposit. Please do not worry though your solicitor will sort this out for you.

Mortgages are often represented as having a certain ‘LTV.’ This stands for ‘loan to value’ and refers to the amount of the property price that the mortgage would cover. E.g., if you put down 5%, you’ll need a mortgage with a 95% LTV.

Your options

If you’re having trouble saving for a large enough deposit for your first home, there’s help available. Consider the following options: Help to Buy equity loan: you put down a 5% deposit, the government gives you up to 20% in England and Wales and 40% in London, and you get a mortgage to cover the remainder. (The scheme in Scotland has now ended.) Shared ownership entails buying a part of the property and paying rent on the remainder. You can ask a friend to buy the property with you so with your combined income you may both earn enough to purchase a property. Buying a house with your mates has its drawbacks, but it can be done successfully in some cases. Get assistance from your parents or family members; they don’t have to give you money to put into your deposit. Instead, they can put their savings or property up as security for your loan. A lifetime Isa is a savings account that comes with a government bonus of 25%. It would help if you were under the age of 40 when you open the account, and you won’t be able to access your money or bonus until you’ve had it for at least a year.

Average first-time buyer deposit Q&As

Will I need a bigger deposit if I have bad credit?

Yes. Generally, if you have missed payments or specifically had defaults or County Court Judgements registered against you on your credit report then yes you generally have to put down a bigger deposit. When applying for a mortgage, lenders will consider your deposit and income. They will also consider your credit history when determining whether or not you will be able to repay a large loan. Some lenders will not lend to you if your credit history reveals that you’ve missed other loan payments, defaulted on bills, or received County Court Judgements (CCJs). Some lenders will still accept you for a mortgage, but you’ll likely have to show that you’ve made on-time payments for a certain period of time, and you won’t be able to get the best rates or LTVs.

Can parents contribute towards my mortgage deposit?

Yes, parents can assist with deposits but certain protocols must be followed, such as signing a gifted deposit a letter stating that the funds will not be repaid and they have no financial interest in the property. Some lenders can also restrict the amount of money you may put down with a family member.  

Can I pay for my mortgage deposit with a loan?

This is usually determined by the type of loan, the lender, and the amount you wish to borrow. Lenders would typically enquire about how you obtained the funds for your deposit, stating that it must be from a ‘non-refundable source – such as your own savings or a donation from a family member – rather than a loan or something you’ll have to repay. On the other hand, some lenders will accept loans as a form of deposit but will factor this in when assessing your ability to afford the mortgage thus may reduce the amount of money you can borrow. Your parents or a friend can lend you the money for your deposit or maybe give it to you as a gift.

Who do I pay a mortgage deposit to?

While you must show that you have the funds saved to your mortgage lender, you pay the deposit to your conveyancer when you exchange contracts. Your deposit, along with the money from your lender paying the remainder of the property value, will be sent to the seller after the contracts have been signed and the mortgage has been completed.

Will I get my mortgage deposit back?

(This does not make sense and is probably American). When you put down a deposit on a home, you’re paying a small part of the total price and the remainder is financed by the mortgage lender. Then, over time, you pay the mortgage lender back the money you borrowed. You won’t get your deposit back until you’ve sold the house. since you used it to purchase a share of the house, it is your equity.

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