Saving for Your First Home

Making the first step onto the property ladder can feel overwhelming. If you're looking for advice on saving for a house, read our extensive guide here.

For a lot of people, making the first step onto the property ladder is an overwhelming prospect. However, daunting as it may seem, there are plenty of ways to make the saving process manageable.

  • Where do I start?
  • What kind of savings account do I need?
  • How much do I need to save for a house?
  • What else should I know?

Where do I start?

Reviewing your current financial situation

If you’re struggling to know where to start, it’s best to review your current financial situation first.

Some questions to consider are:

  • How much is my total income?
  • How much do I spend on living costs?
  • Do I have any existing savings?
  • Are there any family members or friends I may be able to borrow from?
  • Is there any inheritance money I’m entitled to?

Having an idea of your financial situation, as well as family and friends who may be able to help, gives you a baseline to work with. From here, you can start to piece together how much you will need to save, to afford your first home.

Setting manageable targets

A key part of saving for a house is making sure you keep on top of your savings.

Setting manageable targets that factor in your current income and outgoings are a great way to ensure you stay on track. Once you have decided how much you can realistically save monthly, you may choose to set yourself a six-month target.

Great ways to ensure you stick to saving for a house are:

  • Setting up a standing order that automatically transfers money into your savings account
  • Budgeting your income to avoid the need to dip into your savings

For more help on cutting back your living costs, read our guide on Ten Ways to Start Saving £15K.

What kind of savings account do I need?

Help to Buy: ISAS

Many first time buyers opt to save using a Help to Buy: ISA.

When you save money in a Help to Buy: ISA, the Government rewards you by adding 25% of what you have already saved, tax-free.

This means for every £200 you save, the Government will reward you with a £50 bonus. However, you need to have saved at least £1,600 before you are eligible for a Government bonus. This is unless you make an initial deposit of £1,000.

The maximum bonus you can receive is £3,000. In order to receive this, you will need to have saved £12,000 in your ISA.

Help to Buy: ISAs are available to each individual buyer, not each household. This means if you’re looking to buy your first home with a partner, the two of you could receive a total of £6,000 from the Government, to be used to buy your home.

Find out about the different types of savings accounts available with Newcastle Building Society. As well as Help to Buy: ISAs, we offer a First Home Savings Account that rewards customers with a £1,000 bonus when they choose to take out a mortgage with us.

Lifetime ISAs

If you choose to save with Newcastle Building Society, you have the option of two Government savings schemes; as well as a Help to Buy: ISA, we offer a Lifetime ISA.

A Lifetime ISA allows you to save up to £4,000 tax-free each year. Much like a Help To Buy: ISA, the Government then adds on an additional 25% bonus.

Though both of these schemes make great options when saving for a house, there are a number of differences you may want to consider.

Below is a table comparing a Lifetime ISA and a Help to Buy: ISA to help you make the right decision for you.

How much do I need to save for a house?

Understanding house deposits

One of the most important parts of saving for a house is making sure you have enough money to cover the deposit.

Deposits are worked out based on a percentage of the value of the house you are buying, and the mortgage is based on what is left.

To put this into perspective, according to HM Land Registry, in 2018 the average house price in the UK was £232,552. So, a 5% deposit for a house of this price would be £11,627.60.

This means you would need to:

  • Save a minimum of £11,627.60 to cover the deposit
  • Borrow £220,924.40 from your mortgage lender

Although a 5% deposit makes it easy to get on the property ladder sooner, you should always aim to accumulate as large of a deposit as possible.  

Not only does this improve the likelihood of getting a mortgage, this also means your monthly mortgage repayments will be smaller because the bigger the deposit, the smaller the balance that’s left to pay off.

Understanding loan to value

LTV, or loan-to-value, is a phrase you may have come across whilst looking into buying your first home. LTV is usually a percentage figure that refers to how much mortgage you have, in relation to how much your property is worth.

Some mortgages have an LTV of 95%, which means you need a 5% deposit. Mortgages with a lower LTV usually come with lower interest rates and fees.

Other fees to prepare for

Whilst knowing how to save for a house deposit is important, there are a number of other costs that come with moving into your first home that you should know about.

Consequently, it’s a good idea to save additional money, on top of the money for your deposit, to cover the fees that may be incurred during the purchasing process.

Some of the fees you may be charged with whilst buying your first home are:

  • Booking fee
  • Stamp duty
  • Arrangement fee
  • Survey fees
  • Transfer fee
  • Valuation fee
  • Cost of moving possessions
  • Solicitor’s fees
  • Broker or advisor’s fees

Combined with your deposit, these fees can quickly accumulate.  Setting aside another pot of savings, perhaps in a regular savings account, is a good idea to ensure you have enough to cover all extraneous costs.

What else should I know?

Saving for a home can feel like a long and, at times, stressful process but it is worth the wait. Once you are in the habit of saving regularly, your nest egg will soon start to build up.

For more advice on being a first time buyer, refer to our first time buyer’s hub. Here, you’ll find all you need to ensure a smooth move-in to your new home; from what to expect from the house buying process to the mortgage application process. Alternatively, pop in to your nearest Newcastle Building Society to speak with a member of our team.