NEW! Our Hero’s Journey tool can help you with your next step towards financial freedom - click here to try now.
Advertiser Disclosure

Why more first-time buyers are funding their own deposits

Why more first-time buyers are funding their own deposits
Image source: Getty Images

For most, the first step towards getting on the property ladder is saving for a mortgage deposit. However, raising a deposit can be difficult, especially for first-time buyers. That’s why many have to rely on the good old bank of mum and dad for assistance.

However, according to new research from estate agent Purplebricks, things may be changing. In the last five years, there has been a sharp increase in the number of first-time buyers saving for their deposit entirely on their own. Here is everything you need to know.

Plot your path towards financial freedom with our Hero’s Journey tool!

MyWalletHero is here to help you learn about taking control of your money, whether that’s paying off debt, working towards a short-term money goal, or investing for your future.

This tool can help you understand the next steps on your journey – simply choose a goal that best describes your current interests to get started.

What is the average deposit?

The exact deposit required is determined by the type of mortgage you choose and the value of the property.

For example, because of the government’s new mortgage guarantee scheme, first-time buyers can currently obtain a mortgage with a deposit of only 5% of the property’s value.

The average deposit needed for this 5% mortgage in cash terms is around £15,400, according to fintech firm Thinkmoney. This cost is inclusive of the actual deposit plus additional expenses such as conveyancing, survey, and mortgage broker fees.

But while 5% is the minimum deposit you will need to get a mortgage, many people prefer to save more. That’s because a larger deposit usually translates into a better mortgage deal. It opens up lower interest rates and possibly lower monthly repayments.

Why are more first-time buyers funding their own deposits?

According to research from Purplebricks, 43% of first-time buyers today have raised the full deposit for a property without help from other sources, compared to 29% in 2016.

A lot of this has to do with lockdown. With the costs associated with things like commuting, holidaying and socialising drastically reducing during the pandemic, people have been able to make significant savings.

Those attempting to purchase a home for the first time appear to be using their savings to fully fund their deposit.

Despite the increase in self-sufficient first-time buyers, research shows that parents continue to provide financial assistance with deposits for almost a third of all property purchases today, which is nearly the same as it was five years ago.

Have there been other changes in buyer behaviour and preferences?

The research from Purplebricks further shows a few changes in the behaviour and preferences of buyers.

For example, first-time buyers are planning to put down smaller deposits than their counterparts five years ago. The average deposit is now £29,943, which is 10% lower than the £32,954 buyers were previously putting down.

The pandemic has also changed the priorities of first-time buyers. Now that working from home has become common:

  • 68% of buyers say they would consider living in a rural area, compared with 57% five years ago.
  • Good Wi-Fi is now important to 41% of first-time buyers, up from 33% in 2016. This makes it a bigger priority than proximity to good schools, pubs and cafes.

Finally, the number of first-time buyers going for new build homes has increased from one-quarter in 2016 to one-third today.

Why is now an exciting time for first-time buyers?

Now is undoubtedly an exciting time for first-time buyers. This includes those who are looking to buy now and those saving to buy later.

First of all, tools like a Lifetime ISA, through which buyers can save £4,000 each year and enjoy a 25% free top-up from the government, means that aspiring first-time buyers can prepare to buy a house more easily.

And, with the return of low-deposit mortgages and the availability of schemes such as Help to Buy, first-time buyers won’t have to save for long before they can afford their first home.

If buyers have already initiated the purchase process and are able to complete before the end of June, they stand to benefit from the stamp duty holiday, which could save them as much as £15,000 in stamp duty.

Was this article helpful?

4 iron-clad rules for saving money on everything

Our Editor Sam Robson has been on a personal cost-cutting mission for years – and it’s time to share his wisdom.

Check out his choicest saving tips and tricks in this free report, “Sam’s 4 Iron-Clad Rules For Saving Money On Everything”.

Just enter your email below for instant access to your free copy.

By checking this box and submitting your email address, you agree to MyWalletHero sending you emails with money tips, along with details of products and services that we think might interest you. You can unsubscribe from future emails at any time. You also consent to us processing your personal data in line with our privacy policy, and our cookie statement. For more information, including how we collect, store, and handle personal data, please read our Privacy Statement and Terms & Conditions.

Some offers on MyWalletHero are from our partners — it’s how we make money and keep this site going. But does that impact our ratings? Nope. Our commitment is to you. If a product isn’t any good, our rating will reflect that, or we won’t list it at all. Also, while we aim to feature the best products available, we do not review every product on the market. Learn more here. The statements above are The Motley Fool’s alone and have not been provided or endorsed by bank advertisers. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool UK has recommended Barclays, Hargreaves Lansdown, HSBC Holdings, Lloyds Banking Group, Mastercard, and Tesco.