Saving for your first deposit

Saving for that first deposit is often the biggest hurdle between you and getting your dream home.

It seems daunting, but it doesn’t have to be. With careful planning and some research, you will feel totally in control. Here are Coreco’s top tips on saving for that evasive deposit.

Start saving now!

If your dream is to own your own home, the earlier you start saving, the quicker you can achieve it. Also, the bigger the deposit you can save, the better the mortgage deal. It’s important to consider all the other associated costs of buying your first home, including stamp duty and moving costs.

Once you have worked out the amount you need to save, create a plan to reach this goal. If you know you need to save £20,000 and you want to buy in five years, put away £333 each month. If this is out of your budget, then you may need to reassess your goals and adjust your monthly payments accordingly.

Standard savings accounts are a great start, as not only are you building a financial cushion, but you might also earn a bit of interest along the way. But how much of that interest is actually yours to keep?

Here’s the deal: In the UK, interest earned on savings is classed as income, which means it can be taxed. However, most people won’t pay a penny thanks to the Personal Savings Allowance (PSA). If you’re a basic rate (20%) taxpayer, you can earn up to £1,000 in interest each tax year without paying tax on it. Higher rate (40%) taxpayers get a £500 allowance, and additional rate (45%) taxpayers don’t get an allowance at all.

Banks and building societies no longer deduct tax at source, so it’s up to you to declare anything above your allowance through self-assessment or your tax code.

Grow your savings quicker

An ISA (Individual Savings Account) is a special kind of savings or investment account where any interest or returns you earn are completely tax-free. Yep, tax-free! That means more of your money stays exactly where it belongs—in your pocket.

There are a few different types of ISAs, each with its own perks, from saving for your first home to investing in the stock market. The question is, which type is best for you?

Individual Savings Accounts (ISAs): The Versatile Veteran

Let’s start with the ISA, a seasoned player in the savings game. An ISA is a bit like a Swiss Army knife—versatile, reliable, and tax-efficient. You can save or invest up to £20,000 per year, and whether it’s cash, stocks and shares, or a mix of both, the taxman can’t touch the interest, dividends, or capital gains. It’s a broad church, catering to a wide range of savings goals, from the short-term wish list to the long-term dream fund.

But what makes the ISA stand out is it’s flexibility. You can withdraw your money anytime without losing the tax benefits, making it an excellent option for those who want to save, but also like the comfort of accessing their funds if needed. It’s the veteran player that’s been around the block, trusted and tested.

Lifetime ISAs (LISAs): Get a 25% bonus on your savings

Enter the LISA, the newer kid on the block with a very particular set of skills. Designed for two of life’s big milestones—buying your first home and retirement—LISAs offer a generous government bonus of 25% on contributions up to £4,000 a year, capped at a £1,000 bonus per year. That’s essentially free money to help you get onto the property ladder or save for those golden years.

However, LISAs come with strings attached. You can only open one if you’re aged 18 to 39, and withdrawing funds for anything other than a first home purchase or after you’re 60 will incur a hefty penalty. It’s the focused player, with a specific goal in mind, offering lucrative rewards for those who stick to the game plan.

In summary:

• You can open a LISA if you’re aged between 18 and 40
• You can deposit up to £4,000 a year in total – no monthly limits
• Every year, the 25% government bonus is deposited straight into the account, so you can easily track how much you can put towards your deposit.
• The bonus is available on properties worth up to £450k anywhere in the UK
• You can’t withdraw the savings in the first 12 months so if you’re planning on buying in the next 12 months, go for another option.

The Showdown: ISA vs. LISA

So, how do you choose between these two contenders? It boils down to your financial goals and circumstances. If you’re looking for flexibility and a broad saving or investment platform without age restrictions, the ISA is your go-to. It’s the seasoned pro that offers a reliable way to grow your wealth, tax-free, without putting all your eggs in one basket.

On the other hand, if your eyes are set on buying your first home or you’re starting early on your retirement savings and can commit to the long game, the LISA’s 25% bonus is a game-changer. It’s like having an extra player on the field, boosting your savings towards those specific goals.

But remember, the best choice is the one that aligns with your personal financial strategy and life goals. Sometimes, it’s not about picking one over the other but understanding how each can play a role in your broader financial game plan. Whether you choose the ISA, the LISA, or decide to field both in your savings strategy, the key is to start saving early and make the most of the tax-efficient opportunities available. Like any good match, understanding the rules, playing to your strengths, and having a clear strategy will set you on the path to financial victory.

Help to Buy ISA

Help to Buy ISAs have now been withdrawn from the market along with the Help to Buy Scheme, but if you have an existing Help to Buy ISA it can still be used. Here are the the main details of this type of ISA:

• You can make an initial lump sum payment of £1,000 and then set up a direct debit for up to £200 each month afterwards.
• The government will add £50 for every £200 saved in your account up to £12,000. So, that’s a maximum bonus of £3,000.
• The bonus is available on properties worth up to £250k or £450k in London

Save the right amount

The average house price in May 2017 was £220,713*, with house prices ever increasing the average house price in January 2025 is now £268,548*. This means you’d need a minimum of £13,428 to achieve the 5% minimum deposit required. Even though this is the minimum required, it will not give you access to the cheapest mortgage deal. A 10% deposit of £26,855 or even a 25% deposit of £67,137 can unlock a large range of mortgage products and rates and save you money in the long-term.

What if I can only save 5%?

Even if you can only save the minimum 5%, schemes are available to help you get the most of your money. Although Help to Buy has closed, there is now a lender who has a similar scheme if you are buying a new-build property, or the Own New Scheme, which will help reduce your mortgage costs.

Innovation in the mortgage market has improved, and there is now a product that will allow you to buy with only a £5,000 deposit and even 100% no deposit mortgages. We recommend you speak to your friendly mortgage adviser (hello!) before you take the plunge to see which scheme would work best for you.

There are also shared equity schemes that are run by property developers but the terms and conditions around this vary, so be sure to do your research.

Talk to an adviser

A qualified mortgage adviser can give you an idea if your goals are achievable and what you need to do to make sure your accounts are in order. We can ensure everything is in place for when you’re ready to purchase your first home.

Give us a call on 020 7220 5110 or fill out the form below to arrange a no-obligation chat!

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

There may be a fee for mortgage advice. The actual amount you pay will depend on your circumstances. The fee is up to 1% but a typical fee is 0.3% of the amount borrowed.

* Source: http://landregistry.data.gov.uk/app/ukhpi