How to save for a mortgage deposit

Mortgages

How to save for a mortgage deposit

By Marie Kemplay

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How to save for a mortgage deposit

Saving up for a mortgage deposit can seem daunting, but it needn't be. We show you the best ways to save for your first home.

More than half of the first-time buyers in the 2015 Which? national property survey said that they'd had a deposit of more than 10% when buying their first home, and the average first-time buyer deposit was 17%.

Here, we explain some of the most popular methods of saving for a deposit on a property and suggest what might be the right option for you.  

  • Working out how much you need to save can be confusing. For tailored advice based on your personal circumstances, you can speak to Which? Mortgage Advisers on 0808 252 7897.

Saving for a property deposit in a Help to Buy Isa

Help to Buy Isas are aimed at helping people save for their first home and are available to prospective first-time buyers over the age of 16. 

With a Help to Buy Isa, the government will add a £50 bonus for every £200 saved in the account, up to savings of £12,000. This means savers could benefit from a maximum bonus of £3,000. 

The bonus is available on properties worth up to £250,000, or £450,000 in London, and will be paid when you buy your first property. 

Accounts are per person, not per property, so people buying together can both receive a bonus. Savers can make an initial deposit of up to £1,000 to open the account and then pay in up to £200 each month afterwards. 

Another benefit of the Help to Buy Isa is that, like other Isas, any interest you earn will be tax-free. You can save up to £15,240 into an Isa in the 2016/17 tax year. 

How to save for a mortgage deposit with a savings account

Regular savings accounts often pay attractive headline rates of interest and can be a good way to make sure you're putting money aside every month. 

But they often have restrictions that you need to watch out for. For example, there may be limits on the number of withdrawals you can make each year, you may receive less interest if you miss a month of savings and you may need to have a current account with the bank. 

Find out more: compare savings and Isa rates with Which? Money Compare.

Instant-access vs fixed-rate savings accounts

If you already have a small lump sum built up, but it’s going to take you a few years to save up the rest of your deposit, you could get a better rate of interest by locking your money away for a year or more.

You could consider a one or two-year fixed-term fixed-rate savings account for your lump sum, and then use your cash Isa allowance or a regular savings account for the remaining amount of the deposit that you need to accumulate.

Find out more: Which? Money Compare lets you search hundreds of fixed-rate deals.

Investments when saving for a mortgage deposit

The key to saving for your deposit is to make the most of every penny you save. With savings rates still at record lows, you may be tempted to put some of your money into the stock market to try to achieve a better rate of return.

However, when you invest your money, you put it at risk of falling in value. You'll have the potential to make better returns than the bank, but you could do much worse. It may take several years to recover from any falls in the stock market, setting back your plan to get onto the property ladder.

Find out more: our step-by-step guide to buying a house highlights everything you need to do to secure the home of your dreams, from saving for a deposit to collecting the keys. 

  • Last updated: September 2016
  • Updated by: Marie Kemplay

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