Buying a house in London can feel daunting, especially for first-time buyers saving for a deposit. A minimum of 5-10% of the property value is required for a deposit, so you’ll need a concrete savings plan.
In this article, we will run through everything you need to know to save for your new home in London.
How much deposit do you need in London?
Buyers will usually need 5-10% of the house price as a deposit. For a £300,000 home, this would be between £15,000 and £30,000.
Consider the value of the property you wish to purchase, the deposit required and when you want to move. This should give you an idea of how much you’ll need to save monthly and how realistic your savings goals are.
However, London homebuying may be challenging for first-time buyers, as prices can be higher than in other parts of the UK, so you may need a larger deposit.
Average property prices for first-time buyers in London
According to the UK House Price Index, the average property price in London is £481,000 for first-time buyers.
Typical deposit ranges for London first-time buyers
UK Finance found that the average deposit for first-time buyers in the UK was £68,154. For London buyers, this was more than double at £151,731. The average deposit in London sits at 29.6% of the total property value.
The benefit of larger deposits
The higher your deposit, the less you need to borrow, making you more attractive to mortgage lenders with competitive rates. You also own more of your property from the outset.
Buying a house in London with a 10-15% deposit can help to widen mortgage options and lower interest rates. A deposit of 25% is favourable, but not typical for first-time buyers.
Government schemes that can help first-time buyers in London
There are several Government-backed schemes that give you a helping hand to get on the property ladder in London. These can be useful if you can afford the monthly mortgage repayments, but don’t have a huge amount of savings.
Lifetime ISA
A Lifetime ISA can help first-time buyers aged 18-39 to save up for a deposit. You can put in up to £4,000 per year until you’re 50. The Government will add a 25% bonus on top, a maximum of £1,000 per year. You will need to have had your Lifetime ISA for a year before using it towards your first home.
Shared Ownership
Shared Ownership offers first-time buyers a way to get onto the property ladder. You can buy a share between 25% and 75% of a home’s value and pay rent to a landlord for the rest.
First Homes Scheme
The First Homes Scheme helps first-time buyers to buy a home for 30-50% less than its market value. This includes new homes up to a maximum price of £420,000.
Smart ways to boost your deposit
Lower monthly repayments and less interest are beneficial in the long run. However, London homebuyers will require a concrete savings plan to reach their goal. Let’s look at some ways to boost your deposit savings.
Automate your savings
Set up a direct debit to leave your current account and hit your savings when you get paid. If it doesn’t spend any time in your account, you won’t spend it unnecessarily. This is sometimes known as a ‘pay yourself first’ savings technique.
Reduce rent and outgoings
If possible, moving back into your family’s home is a fantastic way to save on rent and put this money into savings.
If moving home isn’t an option, consider finding a smaller, less expensive rental or a house share.
Sell unused items to accelerate savings
Selling unused items can add money to your savings. It can make the moving process easier, with less spent on removal fees for unwanted items. Try using platforms like Facebook Marketplace or eBay.
Budgeting hacks and lifestyle adjustments
When first buying a house in London, you may not be aware of all the costs. These can include conveyancing fees and Stamp Duty for properties over £300,000. You’ll also need to budget for new home expenses. This is where budgeting and lifestyle hacks can help.
Track your spending and set a goal
Track your monthly income and outgoings. Be realistic with how much you can set aside and then stick to your savings goals. Once you know how much you need to save every month, always keep to your budget. It may help to regularly review your finances and alter your budget to align with this.
Cut down on unnecessary expenses
Saving can be hard, but there are always small things you can do to cut back on your expenses. These may include taking lunch to work, changing energy suppliers and cancelling unused subscriptions. It might not sound fun, but it’ll be worth it in the long run.
Tips to help you save for a deposit
Discover our top tips and handy tools that can help you save for a deposit, from finding the right savings account to making the most of cashback and loyalty schemes.
Find the right savings account
Think about the best place to put your savings. A high-interest savings account is a great place for first-time buyers to keep their deposit, but to find the best account, it’s important to shop around.
Use price comparison sites to find the best savings account for your needs. For example, when saving with a Lifetime ISA, the Government will boost your savings by 25%, which can help increase your deposit.
Use cashback and loyalty programs
Many banks will offer cashback and loyalty programs to new and existing account holders. You can earn money back on everyday spending and save this extra cash towards your deposit.
Monitor savings milestones
Keep track of your savings with a mortgage calculator. Online trackers can keep you motivated to stay on track with your savings. They can give you an idea of how long it will take to save for your London home deposit.
For more tips and advice, check out our first-time buyers' guide to London.
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