How to Get on the Property Ladder with a Small Deposit
Buying your first property is an exciting milestone, but it’s natural to feel apprehensive if your deposit isn’t as large as you’d like. Rest assured, many first-time buyers have faced similar challenges and found their way to homeownership. With the right guidance and a solid plan, you can join them.
This guide will walk you through everything you need to know about saving for a deposit, improving your financial profile, and exploring alternatives to make your homeownership dream a reality.
What is a Mortgage Deposit?
A mortgage deposit is the upfront payment you make toward purchasing a property. Typically, this needs to be at least 5% of the property’s value. For instance, if the house you want costs £200,000, your deposit would need to be at least £10,000.
The larger your deposit, the smaller the mortgage you’ll need, which can lead to better mortgage terms and lower monthly payments. If you’re unsure how much you can borrow based on your savings, a borrowing calculator can help you estimate.
How to Save for a Deposit
Saving for a deposit may seem like a daunting task, but with a few practical strategies, you can build your savings more efficiently.
1. Reduce Your Expenses
Cutting back on unnecessary spending not only increases your savings but also shows lenders that you manage your money responsibly. Here are some actionable steps to reduce your expenditures:
- Open a Dedicated Savings Account: Use a separate savings account to set aside money exclusively for your deposit. This keeps your funds organised and less tempting to spend.
- Use Price Comparison Tools: Compare prices for utilities, insurance, and groceries. These tools can help you save hundreds of pounds annually.
- Install a Budgeting App: Apps like Monzo or Revolut help track your spending and identify areas where you can cut back.
It’s not just about saving money but also ensuring your savings grow. A Lifetime ISA (LISA) is an excellent tool for first-time buyers:
- Save up to £4,000 annually until age 50.
- The government contributes 25%, up to £1,000 per year.
- Save at your own pace, either in lump sums or smaller amounts.
Improving Your Credit Score
Your credit score plays a vital role in securing a mortgage. It helps lenders assess how likely you are to repay the loan. With a smaller deposit, you’ll need to borrow more, so having a strong credit score increases your chances of approval. Your credit history will be used by the lender to determine whether to lend to you, how much you may borrow and, in certain circumstances, how much interest to charge.
1. Check Your Credit Report
Start by reviewing your credit reports from agencies like Experian, Equifax and TransUnion. Ensure all information is accurate and report any errors promptly.
2. Steps to Boost Your Credit Score
- Pay Bills on Time: Timely payments demonstrate financial reliability.
- Use Credit Wisely: Keep your credit utilization below 30% of your limit.
- Join the Electoral Roll: Being registered to vote can improve your creditworthiness.
Exploring Other Options
If saving for a deposit seems out of reach, there are alternative paths to purchasing your first property:
- Government Schemes: Options like Help to Buy or Shared Ownership can lower the deposit barrier.
- Low-Deposit Mortgages: Some lenders offer 95% mortgages, requiring only a 5% deposit.
Taking the First Steps
Climbing the property ladder is a significant achievement, and while it may take time, a clear plan and smart financial habits can bring your goals within reach.
If you’re unsure about your next steps, professional advice can make all the difference. Contact our mortgage team today for a free, no-obligation consultation, and they can help you to explore the right options to help you secure your first home.
*Your home may be repossessed if you do not keep up repayments on your mortgage. There may be a fee for arranging a mortgage. The actual amount you pay will depend upon your circumstances. The fee is up to 1.5% but a typical fee is 0.3% of the amount borrowed.
