8 tips for your 'first time buyer' savings

Looking to get on to the property ladder? We know it can be a bit intimidating with all of the new terms and complex deals. But, as a first time buyer, savings are totally possible if you know what you’re doing and have the motivation to succeed. This guide will give you some tips for saving to buy your first home, and give you an idea of how much first time home buyers should save to secure their first ever home.

The reason that having savings for first time buyers is so important becomes clear as soon as you see how much you need for a deposit, let alone the full value of a house. The numbers can quickly feel overwhelming (especially in this day and age) but by making a plan, being patient and keeping yourself on track, getting the keys to your first home could be on the cards for you. The emotional and financial rewards for home ownership are usually well worth it.

But how does anybody know where to start with buying a house? Well, whether you’re starting from scratch or you’ve been saving for years already and you’re nearly ready to take the plunge, this guide will help you take the next big steps towards home ownership. 

What is a first time buyer mortgage?

If you’re a first home saver, you might already know that you need a mortgage. But how much should a first time home buyer have saved to get started and what exactly is a first time buyer mortgage anyway? These are both great questions to ask when you’re beginning to understand all the terms that get thrown around when house hunting. 

Simply put, a mortgage is a big loan which you take out in order to buy a property. You’ll likely need at least 5% (or up to 20%) of the total value of the house to be paid as a deposit to secure the loan. Generally, mortgages have terms of around 25 years, in which you can repay the borrowed amount. The loan itself will normally be secured against your home (called a legal charge), so if you can’t make your repayments it could be repossessed.

You are normally considered to be a first time buyer if this is the first time you have tried to buy a house, and you have never previously owned a freehold or had a leasehold interest in a property anywhere in the world. If that’s you, the following tips can help you find and save for the best mortgage for you.

8 Tips for saving to buy your first home

1. Research how much to save for first time home buyers

Before you get started, it’s a good idea to research exactly how much to save for a house. First time buyers will likely be beginning their journey with little to no savings, so understanding the property market and the average value of houses in different areas will help you to make realistic decisions around affordability. This is really important because stretching for something you can’t reach can sink your motivation.

If you’re not sure whether you can afford to step onto the property ladder or how much to save for a first time home buyer, we’ll be covering both in this guide. We’ll talk about the budgeting rules you can use to help you understand what your individual affordability is. But for now, let’s look at what a likely house price might be in your range and how much you might expect to pay as a deposit to secure a mortgage.

Let’s begin with house values. You can pop into local estate agents or scour websites and apps, like Zoopla and Rightmove, to get an idea of average house prices in the area you want to move to. Remember, it’s all about location, location, location. If your results seem too rich, consider expanding your search area or trying a different postcode altogether. 

Think about the sort of property you need. Are you moving in on your own and not looking to add a family in the near future? Or are you a big family looking for more space and land away from the city? These different wants and criteria will likely considerably change the value of properties you’d be interested in.

Once you’ve worked out a realistic average house price you can afford, you can then start to work out how much you will need as a deposit. There are lots of factors which can have an impact on the percentage you will be required to pay as a deposit, but you can expect that it will be at least 5% of the house value. So, if you’re looking at £250,000 houses, your deposit will likely be at a minimum of £12,500. 

2. Consider additional costs

When saving, first time home buyers might also need to be mindful that there is more than the deposit to pay. The true total cost will likely be higher than you initially expect with the fees attached to buying a house like legal, conveyancing and administration. Other costs include removal companies, buildings insurance, furniture, cleaners and any urgent renovations or decorations.

3. Get government help for first time buyers

Some of the best savings for first time buyers come from government initiatives. Check the government website for the latest schemes for first time buyers, older people and people with disabilities. You may be eligible for help and it can make a real difference. At the time of publishing the blog, these  schemes  include:

Lifetime individual savings account (ISA): If you’re aged 18-39 you could be eligible for a lifetime ISA. When saving for your first house you can contribute as much as £4,000 per year before getting a 25% bonus from the government (that’s up to £1,000 tax-free from the government every year!). Lifetime ISAs can only be withdrawn for first time house buyers or for retirement.

Mortgage guarantee scheme: This recently announced government scheme is intended to support the next generation of homeowners. It essentially boosts the availability of 95% loan-to-value (LTV) mortgages, which help first time buyers access smaller deposits. 

Shared ownership: As the name suggests, shared ownership lets you buy a share of a property from the council or a housing association and then pay rent on what’s left. You would need a mortgage of between a quarter and three-quarters of the value of the property. You pay a reduced rent on the share that is owned by the landlord, and you can choose to   buy more or all of the house in the future.

First home scheme: In England, first time buyers can buy a certain kind of property at 30-50% of its market value with this scheme, as long as it is their main residence. The discount is only available to first time buyers and is valued by an independent surveyor, but you can save a great deal of cash. The catch is that you must sell your house at the same discount, normally to an eligible first time buyer.

4. Grow your credit score

Your credit score is a value which lets you know how creditworthy you appear to mortgage lenders. Generally speaking, the higher your credit score, the better. When you apply for a mortgage, the lender will do what’s known as a hard credit check on you. This search of your credit report is to establish whether they will lend you the money and the interest rate they’ll want it repaid at.

When it comes to large loans like mortgages, having a higher credit score can literally save you £1,000s. As a Loqbox member, we can help you to grow your credit score by using an interest-free credit account and reporting your payments to the top three credit reference agencies (CRAs) in the UK: Experian, Equifax and TransUnion.

Additionally, if you’re looking for a first time home buyer savings account, you can use your savings to boost your credit score with Loqbox. Just tell us your savings goal and we’ll loan you that amount. Then as you pay into your account we report your responsible payments to the CRAs helping to grow your credit score. 

You can find out what a good credit score for a first time buyer is here.

Improvements to your credit score are not guaranteed. 

5. Find a mortgage that’s right for you 

When working out how much to save for a first home, it might help to get your head around the different types of mortgages and how they work. There are lots of new words and phrases to learn and they’re not all clear from the outset. Let’s look at applying for mortgages, how to get the best deals, types of mortgages, and a few common phrases you might want to learn.

When you apply for a mortgage, it’s easy to feel overwhelmed by forms and paperwork. Normally, you will need to give evidence of things like your income, debts, regular spending habits, and details of your employment. This may require copies of tax returns and, if you are self-employed, your business accounts for two or three years. This is so lenders can check your ability to afford the repayments.

You can apply for mortgages through banks and building societies. It is often a good idea to speak to a mortgage advisor who can help you find the best deals to suit your needs — especially if you have special requirements, you’re self-employed or if you only have a small deposit to work with. Alternatively, you can use comparison sites to check different mortgages and their value.

There are lots of different types of mortgages so getting a good understanding of them, and their benefits and pitfalls, can help you to find the right approach for you. Generally, you will either be offered repayment or interest-only mortgages. Repayments are the most common and require monthly payments to the mortgage provider of both the interest on the loan and a part of the loan itself (referred to as the ‘capital’). Interest-only are more usual for buy-to-let mortgages.

You may also be offered fixed or variable interest rates. The fixed rate option lets you keep the same interest rate for an agreed number of years, which protects you from increases in interest rates which may occur. Variable rates can change with the market rate (called the base rate or Bank rate), meaning you could benefit if the rates drop, but could face higher repayments if they go up.

Freehold and leasehold are terms you may encounter when talking about how to buy a house. It’s more common to enter into a freehold, which means you own the property and the land that it is built on outright. A leasehold agreement means you may own a property for the duration of the lease.  Most leases are for 99 years, but some can be shorter or longer. If you are buying a flat, you may have a share of the freehold, or it will be on a lease.

Did you know? As a first time buyer, if your property is valued at less than £425,000 you are not required to pay stamp duty on the purchase. 

6. Create a budget and adjust your spending

When you start saving for a mortgage as a first time buyer, creating a budget can be a good way to kick it off. This can help establish a realistic goal to save towards a deposit. Once you’ve worked out how much your ideal house is likely to cost — and therefore how much you will need for a deposit — the next step is to work out how much you can pay towards your goals per month.

There are lots of different budgeting rules, but the 50/20/30 rule is a simple and effective example you can build your budget from. First, you need to identify all of your outgoings. Gather your bank statements and check where your money goes every month. Now, categorise your expenses into essential and non-essential. 

Ideally with this rule, your income should break into three percentage chunks: 50% for your essential outgoings, 30% for non-essential. That leaves 20% to put towards your first house deposit. You can turn the dial up and down depending on your financial situation, but the important part is making sure it’s a realistic target to aim for that won’t leave you without the funds to keep your day-to-day expenses running. 

If you find that your expenses are more than the budget allows for, have a think about how you can reduce them if possible. Are you spending on unnecessary things that you could potentially sacrifice, like streaming services or unused gym memberships? Could you go out for food less often? Might you be able to reduce your energy bills by checking on comparison sites for a better deal? 

Remember to try and pay yourself first. This means putting money into your savings when you receive it before you do anything else. You can set up automatic payments into your savings account (on payday) so the money’s where you’d like it to be before you’ve got a chance to spend it. This will help you put your financial goals first and hopefully see some good results because of it.

7. Get help

While this definitely isn’t an option for everybody, if you are lucky enough to get help towards your first deposit or support on your saving journey from a close relative or guardian, it can be a real game-changer. People willing to support you like this can help in various ways — from gifting or lending all or some of the deposit to letting you move in to save on rent while you save towards your goal.

8. Save on your rent

If you are looking for ways to boost your first time buyer savings, the chances are you’re currently living in rented accommodation. Reducing your rent can help  boost your saving power and get you to your deposit goal faster. Think about what options you may have available to you.

Do you know anybody who you can move in with to share rental payments and reduce your individual monthly obligations? If you don’t know anybody, you can check flat and house-share websites and apps. There are also co-living opportunities like renting rooms in shared communal buildings. 

‍Did you know you can use your rent payments to boost your credit history? As a Loqbox member, you can tell us when you pay your rent and the amount, then we’ll do the rest. As you make your payments, we’ll report them to Experian, who will include them on your credit report. This will not affect your credit score, but remember that lenders look at your overall credit history and not your score.