Want to buy a house? You'll need £65k deposit!

The average deposit size has passed £65,000, making home ownership a pipedream for many would-be buyers.

Who’d be a first-time buyer?

New research from First Direct has shown just what a tough ask first-time buyers face in taking that first step onto the property ladder. It found that since 1990, the average deposit has risen from £6,793 to a whopping £65,924. Essentially, the size of the deposit you need to buy a house has increased tenfold in the space of just two decades.

That would be fine if wages had increased at a similar rate. Sadly, the average household income has risen by just 2.5 times in that time period, making it all the harder to get a decent deposit together.

The table below shows just how significantly the situation has changed for prospective buyers

Source: First Direct

On the plus side, at least the deposit you’ll need is lower this year than last year! However, the fact remains that it’s still a sum beyond the vast majority of people who would like to buy.

Getting a deposit together

I was lucky really. While my flatmates at University were maxing out credit cards, I worked, and built up savings. And I went back to living at home when I graduated, so that I was able to put half of my salary each month into savings. It still took me a fair while to get a workable deposit together.

It’s not much fun, saving for a deposit. You have to sacrifice nights out, go for a slightly cheaper summer holiday, count the pennies. There’s no quick and easy way to do it, and with average deposits passing £60,000, for many people they’ll be in middle age by the time they get that sort of sum together, or at least relying on Granny to be generous in her Will.

Thankfully though, there are some mortgages that are designed to help buyers out, even if they don’t have huge deposits.

Buying with a small deposit

I bought my house with only a 10% deposit back in 2009. It’s fair to say that I didn’t exactly have a wide range of choice when it came to lenders to deal with. Indeed, according to Moneyfacts, in April of 2009, there were just 72 mortgages for buyers with a 10% deposit to consider. That’s compared to 611 mortgages in 2008!

The table below shows just how sharply the number of available mortgages fell, and how things are improving.

Source: Moneyfacts

Lenders are still focusing the bulk of their efforts on the buyers with plenty of equity, but clearly if you have a pot of savings built up, there will at least be some mortgages to choose from.

The dangers of buying with a small deposit

Buying a property with only a small deposit is not ideal though. The problem is that you only have a very small amount of equity in the property, say 10%. That might sound healthy enough, but it only takes a couple of years of modest house price falls and that could soon disappear.

That then makes it difficult to remortgage. Say you’re on a tracker mortgage, and interest rates start rising. Your mortgage payments go up, and start to hurt. Ideally, now would be the time to remortgage to a different (preferably fixed rate) mortgage. But if you don’t have any equity in the property, you’ll struggle to do so – 100% mortgages may be creeping back in, but on a seriously small scale.

Chances are, you’ll have to sell the house.

Similarly, if the day comes when your home is no longer big enough, or you need to move for work, you’ll struggle to do so if the equity you bought in the first place has been eroded away. Check out How to...get out of negative equity.

All of this hopefully makes clear that if you are going to buy a property with only a small deposit, it’s vital that you get a mortgage that will be affordable even if rates rise in the future, and that you buy a property which will meet your needs for a good few years.

17 fabulous small deposit mortgages

More: The offset mortgage that's worth buying | Why one in five property sales falls through

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This article aims to give information, not advice. Always do your own research and/or seek out advice from an FSA-regulated broker (such as one of our brokers here at lovemoney.com), before acting on anything contained in this article. 

Finally, we tend to only give the initial rate of a deal in our articles, but any deal which lasts for a shorter period than your mortgage term may revert to the lender's standard variable rate or a tracker rate when the deal ends. Before you take out a deal, you should always try to find out from your lender what its standard variable rate is and how it will be determined in the future. Make sure you take all this information into account when comparing different deals.

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