First-Time Buyer – Is Saving For A Larger Deposit Worth The Wait? Or Is The Market Going To Leave Me Behind?

One of the biggest influences on your mortgage rate is driven by the amount of deposit you are contributing towards your new home. The larger your deposit, the more security that the mortgage lender has when they take on the risk of lending money to you. As a result of this, interest rates offered with a smaller deposit are higher than when a larger deposit is put down. Mortgage rates reduce with every additional 5%. These are examples of 2 year fixed rates available today:

5% deposit – 3.95%

10% deposit – 2.20%

15% deposit – 1.74%

As you can see, there is a sizeable reduction in the rate charged from 5% to 10% and then a further moderate reduction from 10% to 15%

Based on a £200,000 mortgage if you were able to put a 10% deposit down instead of 5% then this would mean a saving of £4,725 over the initial 2 year period, which is quite a sum of money, nearly £200 per month.

As well as the mortgage savings associated with having a larger deposit, the added security of having more funds in your house is also valuable and something to factor into considerations.

So does this mean it is worth delaying getting on the ladder to achieve the 10% deposit?

There are a number of factors to consider when answering this question

House price movement

Property prices in England rose 5% in the last year* which would mean an average £200,000 home increased in value by £10,000. We cannot be sure if that trend will continue, 2017 has seen that increase reduce. Despite Brexit and other influences, many expect prices to continue to grow in the coming years

Saving rate

How long would it take you to save the extra money based on what you can put away each month?

Your circumstances

Are you happy to live in your current situation whilst you get more money under your mattress?

Are you renting?

Are you renting?

How much more do you need?

If you already have what you believe to be 8% then you are nearly there!

Can anyone else help?

Could a member of your family help you?

Help to Buy

Government schemes aiming at helping you buy. Head over to our Help to Buy section for more info.

While demand for housing continues to outweigh supply, the house price factor alone suggests that getting on the ladder at the earliest opportunity is advantageous. However, like all considerations relating to buying your first home, every individual and their circumstances are different which is why getting advice from experts is important.

At BeAdvised, we are committed to helping first time buyers achieve their goals and welcome anyone who is saving to buy their first home in the near future to get in touch.

Your home may be repossessed if you do not keep up repayments on your mortgage

*Figures taken from Office of National Statistics based on the average price of properties sold in England between July 2016 and July 2017 – SOURCE

For illustrative purposes only, comparisons in this article have been based on the total costs incurred (including capital repayments, fees and interest) of a competitive 2 year fixed rate mortgage on a 30 year repayment term.

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