Why more first-time buyers are funding their own deposits

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 […]

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.

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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.

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