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How Much Do I Need to Save for a First-Time Buyer Deposit?

Working out what first-time buyer deposit you require can be tricky because lenders will evaluate a host of factors before deciding whether they will offer the best first-time buyer mortgages to each applicant.

Almas Uddin
Almas Uddin

Founder and Mortgage Advisor

Almas Uddin2024-06-14
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How Much Do I Need to Save for a First-Time Buyer Deposit?

Working out what first-time buyer deposit you require can be tricky because lenders will evaluate a host of factors before deciding whether they will offer the best first-time buyer mortgages to each applicant.

As a rule of thumb, you need at least 5% of the purchase value as a first-time buyer deposit, but some lenders may offer 100% mortgages for first-time buyers, usually in specific circumstances, such as using help for first-time buyers through a guarantor.

This guide from Revolution Finance Brokers explains how to calculate your minimum first-time buyer deposit and the factors that might affect your options.

What Do I Need as a First-Time Buyer Deposit?

It is rare to find a first-time buyer mortgage no deposit, so normally, you will need to save a sufficient down payment, which will affect the interest rates and products you qualify for.

The help for first-time buyers introduced with the government mortgage scheme means there are more products and lenders who will accept a 5% first-time buyer deposit, as the government guarantees a large proportion of the loan.

However, not all lenders are enrolled in the first-time buyer deposit scheme, and you will usually find you are offered far more competitive interest rates for every additional 5% you can save.

As a rough idea, if you want to buy a property worth £250,000, a 5% first-time buyer deposit would be £12,500, but if you can save 10%, or £25,000 you will have a wider range of products and lenders to choose between.

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Based on your yearly income,
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Most lenders will let you borrow 4.5 times your annual salary so, as long as you have a standard 10% deposit, you should be able to borrow this much.

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Depending on your personal circumstances, some lenders may let you borrow 5 times your salary.

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Lenders usually cap the amount they lend at 5.5 times your salary, so it’s unlikely you’ll be able to borrow more than this.

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How Much Can I Borrow on a First-Time Buyer Mortgage No Deposit?

Finding 100% mortgages for first-time buyers is unlikely, but if you have a guarantor or another alternative, such as a family offset mortgage, you might be able to proceed without any deposit at all.

In most scenarios, the first-time buyer deposit you need and the amount you can borrow depends on several variables, including:

  • Other debts
  • Your income
  • Regular outgoings
  • Credit score

Mortgage lenders usually multiply your salary by up to roughly four times, which is the cap on the total amount they will lend. Joint applicants can normally borrow a maximum of three times their joint income a year.

Understanding Loan-to-Value Ratios When Looking for the Best First-Time Buyer Mortgages

Lenders may advertise products stating the Loan to Value or LTV limit. This figure is the most they will lend as a percentage of the property price, so you will need a first-time buyer deposit for the balance. For example, a maximum 90% LTV means you need a 10% first-time buyer deposit to qualify.

Saving for a larger first-time buyer deposit can mean applying for an LTV of 90% or 85%, which means your lender perceives the application as a lower risk, which usually results in a more attractive interest rate.

Do 100% Mortgages for First-Time Buyers Exist?

It can be frustrating to pay a higher rent every month than you know a mortgage would cost, but without a first-time buyer deposit, it can be difficult to find a mortgage. However, you can find 100% mortgages for first-time buyers through specific products.

As we've mentioned, a guarantor mortgage is one option, where a relative, normally a parent, guarantees the loan – but they accept responsibility for making the repayments if you default.

Applying for a mortgage with a zero first-time buyer deposit is risky and can mean that you stand a chance of ending up in negative equity if house prices drop, so it isn’t usually recommended unless you have a specific scenario that makes this a viable option.

Taking Out a Loan as a First-Time Buyer Deposit

Few lenders will offer a personal loan if you intend to use the cash as a first-time buyer deposit because lending to an applicant for them to take on more debt increases the likelihood of non-payment and may not comply with responsible lending policies.

Mortgage lenders may also refuse to accept a first-time buyer deposit sourced through a loan, and it is common for them to verify the source of your funds to adhere to money laundering regulations.

Taking out a loan to cover your first-time buyer deposit means you are increasing your debt significantly, and if your debt-to-income ratio is high, a lender is more likely again to refuse your application.

If a lender is prepared to accept a first-time buyer deposit achieved through a loan, they will also likely offer a lower LTV cap, a higher interest rate, or both.

How to Save for a First-Time Buyer Deposit

Saving a substantial value for a first-time buyer deposit can be difficult, particularly where increasing house prices means the value you need to save keeps increasing.

There are lots of savings products that may be useful and help for first-time buyers is available through options like a Lifetime ISA, where you can save up to £4,000 a year towards a first-time buyer deposit and earn £1,000 every 12 months to boost your overall savings.

Alternative options include depositing an amount into a savings account directly from your payslip, using budgeting apps to cut down on your household expenditure, or even moving in with a friend or parent while you save as much as you can towards your first-time buyer deposit.

Applying for a Mortgage With a Gifted First-Time Buyer Deposit

If your family has the means to gift you an amount towards your first-time buyer deposit or pay all of the deposit, you need to be clear that the money is a gift, not a loan they are expecting to be repaid, to avoid the pitfalls we've mentioned above.

Most lenders will accept a gifted first-time buyer deposit, but the individual won’t have an ownership share in the property.

First-Time Buyer Deposit Requirements for Self-Employed Applicants

Self-employed mortgage applicants are riskier from the lender’s perspective because there is a greater potential for your income to change and affect your ability to keep up with your mortgage repayments.

In general, you’ll need a similar first-time buyer deposit as any other applicant, provided you have a good track history, a stable average income, and at least two or three years of self-employed accounts and tax returns to evidence your earnings.

Professional Help Finding the Best First-Time Buyer Mortgages

If you’re struggling to save a first-time buyer deposit, want to explore the options of applying for 100% mortgages for first-time buyers, or have been rejected due to your deposit value, please contact Revolution Finance Brokers at your convenience.

We commonly provide help for first-time buyers, and as an independent, whole-of-market broker can offer expert advice to help you find a product and lender who will help you move forward with your property purchase.

Almas Uddin
Almas Uddin

Founder and Mortgage Advisor

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Frequently Asked
Questions

Most lenders will accept a first-time buyer deposit of a minimum of 5% of the property value, and there are more products now available that are enrolled in the mortgage guarantee scheme. However, you will achieve a more competitive interest rate if you can put forward a larger down payment.

The best possible deals are normally available for buyers with a substantial deposit of 40%, but we recognise that many first-time buyers simply cannot save this amount to purchase their first home. Usually, you will reduce the interest rates you pay for every percentage higher than 5% you can save towards your first-time buyer deposit.

Not as standard, although there are options such as a guarantor or family offset mortgage that can make it possible to take out a mortgage without having a cash deposit available.

No – lenders will always need a first-time buyer deposit, although there are various options and products that can help. We've explored some of the solutions, which could involve a joint proprietor, sole ownership mortgage, or a family offset mortgage where a relative deposits a fixed value into an account to reduce the lender's risk.

Yes, if you’re purchasing a home worth over the first-time buyers £300,000 stamp duty threshold, you may wish to add the stamp duty liability to your total borrowing. However, your first-time buyer deposit value will still need to comply with the minimum deposit requirements set by your lender.

There are several schemes and initiatives you may be eligible for, such as First Homes or Shared Ownership. If you need advice or assistance choosing the right help for first-time buyers or working out which schemes might be applicable to your circumstances, please get in touch.

No, lenders are usually very reluctant to accept a first-time buyer deposit financed via a loan and will not accept a deposit being paid via credit card. Deposits should be from a source that doesn't require repayment, and taking out further short-term debt with a high-interest rate is not a viable option.

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The content included in our articles, blogs, web pages and news publications is based on information accurate at the time of writing. Note that policies and criteria can change regularly throughout the UK mortgage lending market, and it remains essential to contact the consultation team to receive up to date guidance. The information included on the Revolution Brokers site is not bespoke to any circumstances or individual application scenarios and therefore is not intended to be used as financial advice. The content we share is designed to be informative and helpful but cannot be relied upon to provide individual advice relevant to your mortgage requirements. All Revolution team members are fully qualified, trained and experienced to provide mortgage advice of an independent nature.

We collaborate with lenders and providers who are regulated, authorised and registered with the Financial Conduct Authority (FCA). Should you require specific mortgage borrowing types, some products such as buy to let mortgages may not be FCA regulated. The Revolution team can provide further information about regulated and unregulated lending as required. Please remember that a mortgage is a debt which is secured against your home or property. Your home can be at risk of repossession if you do not keep up with the repayments or encounter any other difficulties in managing your mortgage borrowing responsibly. This also applies to any remortgage or home loan secured against your property, including equity release products.

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