How Long Does It Really Take to Save for Your First Home? A Closer Look at 5%, 10%, and 25% Deposits

Saving for your first home is a significant milestone, but it’s no secret that the journey requires dedication, discipline, and a solid financial strategy. With house prices at record highs in the UK, many prospective homeowners find themselves asking: “How long will it take to save for my deposit?” Let’s explore the timelines for saving different deposit amounts—5%, 10%, and 25%—based on current data and available saving options.

What Is a Mortgage Deposit?

Before diving into the numbers, it's important to understand what a mortgage deposit is. A deposit is the cash amount you pay upfront when buying a house, and it directly affects the size of your mortgage, which is the amount you borrow to cover the remaining cost of the property. The larger your deposit, the less you’ll need to borrow, which can open doors to more favourable mortgage deals with lower interest rates.

The Challenge of Saving for a Deposit

Given the current housing market, where the average house price in the UK is £284,950 (as of November 2023), saving for a deposit is more challenging than ever. Personal finance analyst Alice Haine from Bestinvest highlights the “enormous challenge” facing Brits as they attempt to gather the necessary funds. While a 10% deposit is the standard, mortgage deals are available with as little as a 5% deposit. However, it’s the 25% deposit threshold where the best interest rates typically become available.

Breaking Down the Numbers

Using the current average house price, here’s what you would need to save:

• 5% Deposit: £14,247.50
• 10% Deposit: £28,495
• 25% Deposit: £71,237.50
  
  Now, let’s look at how long it would take to save these amounts, depending on your monthly savings.

Saving £180 a Month
The Office of National Statistics (ONS) found that a typical household saves about £180 per month. If you save this amount in an easy access savings account with an average interest rate of 3.17%, here’s how long it would take to reach your deposit goals:

• 5% Deposit: Approximately 6 years
• 10% Deposit: Around 11 years
• 25% Deposit: Over 22 years
  
  Saving £450 a Month
  If you’re able to save more—say £450 a month—into the same savings account:

• 5% Deposit: Around 2 years and 7 months
• 10% Deposit: Approximately 5 years
• 25% Deposit: About 11 years

The Impact of a Lifetime ISA (LISA)

The Government’s Lifetime ISA (LISA) is designed to help young people save for their first home more quickly. If you’re aged between 18 and 39, you can save up to £4,000 a year in a LISA, and the government will add a 25% bonus to your savings, up to £1,000 per year.

Here’s how a LISA could accelerate your savings:

• Saving £180 a Month into a LISA: You could reach your 5% deposit in less than 5 years, instead of 6. A 10% deposit could be saved in about 9 years, and a 25% deposit in approximately 19 years.
• Saving £333 a Month into a LISA: By maxing out your LISA contributions, you could save enough for a 5% deposit in just 3 years, a 10% deposit in 5 years, and a 25% deposit in around 12 years.
  

Additional Support Options

If saving for a large deposit seems daunting, there are other options available:

• Mortgage Guarantee Scheme: This government-backed scheme supports lenders offering 95% mortgages, making it easier for buyers with smaller deposits to secure a home loan.
• Shared Ownership: This option allows you to purchase a share of a property (typically between 25% and 75%) and pay rent on the remaining share, lowering the initial deposit requirement.

Final Thoughts

While the path to saving for a first home deposit can be long and challenging, it’s not impossible with a consistent saving strategy. Whether you’re saving a modest amount each month or have the ability to save more, taking advantage of government schemes like the LISA can significantly speed up the process. As inflation cools and mortgage rates ease, conditions for first-time buyers are improving, offering hope that the dream of homeownership is within reach.

Remember, consistency and patience are key. Every pound saved brings you one step closer to your goal of owning your first home. Happy saving!

Disclaimer: The information provided in this blog is for general informational purposes only and does not constitute financial advice. While we strive to ensure the accuracy and reliability of the information presented, we recommend that you consult with a qualified financial advisor to obtain tailored advice based on your individual circumstances. Mortgage321 does not accept any liability for decisions made based on the information contained in this blog.