Since the government’s mini-budget announcement on 23 September 2022, mortgage rates have soared. It’s as if they’ve been loaded onto a financial rocket and launched into the stratosphere, transforming the landscape for prospective homeowners and current mortgage holders.
To buy a home in the UK, first-time buyers save between £26,400 and £144,500, according to new data. The first-time buyer average deposit paid in the UK for a three-bed home in 2023 was £34,500 for a £240,000 home. This effectively amounts to a 15% deposit for the property. However, the amount you need to save varies according to where you live in the UK and, of course, the level of deposit you wish to pay.
In London, the average price tag for a first home is a staggering £425,000. The first-time buyer average deposit is roughly 34% of the property value, equivalent to £144,500. However, with its sky-high prices, London is more of an exception than the rule. Most first homes across the rest of the UK come with considerably lighter purchase prices, making homeownership more attainable.
According to the data, most first-time buyers average deposit amounts to 24% of the total property price. That’s because a more significant deposit opens up better mortgage rates from lenders. To put a 24% deposit on a £240,000 property, you would need to save £57,600.
Some lenders may offer appropriate borrowers 100% mortgages, meaning they don’t have to pay any deposit to buy a property. Imagine walking into a property purchase with no deposit in your pocket yet securing a loan for the entire cost of your dream home. That’s what a 100% mortgage offers – it’s like a golden ticket for those unable to afford the first-time buyer average deposit.
But 100% mortgages are considered high-risk and are relatively rare unicorns in the current market. Since the financial crash, they’ve been as elusive as a pot of gold at the end of a rainbow, but there are signs they’re making a comeback.
There are other 100% mortgages out there, but they often come with a catch – they’re guarantor mortgages, requiring a family member ready and willing to vouch for you. Eligibility for these full-coverage mortgages isn’t exclusive to first-time buyers. Home movers and those looking to remortgage can also enter the race, depending on various lender criteria.
However, with the number of deals being as limited, having a guarantor doesn’t guarantee you’ll secure a 100% mortgage. Lenders will put your finances under the microscope to ensure you can handle the monthly repayments.
A few factors will also lower your chances of approval, including a bad credit score. No deposit and poor credit history could set off alarm bells for lenders. Even with a decent credit score, monthly debt repayments could impact your ability to pay a mortgage. So, while a 100% mortgage may seem like a dream come true, you should obtain professional mortgage advice to consider all aspects before diving in.
Alternatively, the 95% mortgage scheme is also running until the end of 2023, meaning you only need to save a 5% deposit for the home you want to buy. Think of the mortgage guarantee scheme as a safety net, one that’s been cast by the government to encourage lenders to offer 95% mortgages to buyers who have managed to save a 5% deposit.
Launched in April 2021, this programme responded to the scarcity of high loan-to-value mortgages during the pandemic. If you’re a buyer securing a 95% mortgage, the government vouches for the part of your mortgage above 80%. In other words, in the case of a 95% mortgage, the government guarantees the remaining 15%.
While it may seem complex, it’s straightforward. If a homeowner fails to keep up with their mortgage repayments and defaults, the government covers some of the lender’s losses. This assurance gives banks and building societies the confidence to offer 95% mortgages, making homeownership more accessible for those struggling to save a large deposit.
Venturing into homeownership for the first time is a thrilling expedition. Whether your deposit is primed and ready, you’re busy crafting property alerts or setting off on house viewing adventures – we’re here as your trusted guide, helping you stride towards that all-important first foothold on the property ladder. Learn more about how we can help any first-time buyers, or get in touch via our contact page for professional expert advice, or call us on 0151 329 2900.
 Zoopla 08 June 2023