News: Fix your deposit shortfall

Despite planning to spend two years saving for their deposit, first time buyers will face a potential shortfall of over £5,000 each, according to a report from Alliance & Leicester Mortgages.

The Alliance & Leicester Mortgages study looks at how much and for how long first time buyers plan to save for their deposit. On average they want to save a deposit of £11,710 about eight per cent of the average first time buyer house price. However when it comes to saving, they are looking to put away £270 a month for two years, which with interest gives them over £6,570. This leaves them with a £5,140 shortfall of their ideal target.

In reality, to achieve what they want, aspiring first time buyers will have to put aside almost double nearly £500 a month! Alternatively, and perhaps more realistically, they need to save for longer - around three years and six months at current saving levels. Surprisingly, nearly a third (30%) of potential first time buyers are not saving for a deposit at all, despite having aspirations of getting onto the housing ladder in the next two years.

Richard Taylor, Head of Mortgages at Alliance & Leicester said: "There is a clear mismatch between how much, and for how long first time buyers are willing to save, and their ideal target deposit to buy their first property."

"With the average first time buyer house priced at just over £135,000, the deposit of over £11,000 that first time buyers want equates to about eight per cent which would give them a sizeable slice of equity in their first home."

"To turn dreams into reality it’s a good idea to plan and budget carefully trying to cut back on luxury expenditure, like takeaways and expensive nights out, will all help to achieve their dream more quickly."

Ideal target deposit is five per cent deposit

It is evident from the study that first time buyers are expecting to save almost one third more than they actually will in the time they have allowed themselves. But their ideal target deposit is some way above the standard five per cent deposit which is usually sufficient for first time buyers to get a competitive mortgage rate and a better deal than those who have no deposit at all.

A five per cent deposit for the average house price for a first time buyer currently stands at £6,787 42% less than their ideal target deposit. At £270 a month, current saving levels identified from the study, it will take first time buyers just over two years to save a five per cent deposit.

Cutting back on extras

The study also shows that aspiring first time buyers are not saving as much as they could. It reveals that they spend £136 a month on ‘extras’ this is money spent on non-essential items such as socialising, eating out, music and other leisure activities. Cutting back on these extras could get them the deposit they need a lot quicker. Aspiring first time buyers currently spend £1,639 a year on leisure, with Londoners spending the most at £2,204 a year 34% more than the regions.

Overall if first time buyers were to cut back on leisure by half this amounts to £68 a month - and added this extra money into their ‘deposit savings pot’, they would be able to save their ideal target deposit of £11,710 eight months sooner in just over two years and eight months. This compares with nearly three years and six months at current levels.

Richard Taylor added: "It is worth noting that while first time buyers seem to have an unrealistic expectation of just how much they need to save in order to reach their ideal deposit, a decent deposit is not completely out of reach."

"First time buyers could save a five per cent deposit in the time scale that they have set themselves. And putting aside just £68 extra a month will get them to their ideal deposit in two years eight months."

"If house prices continue to increase, it is in the interest of hopeful first time buyers to make saving for their deposit a priority. Any delay could mean they see further increases in house prices, and need to keep on saving longer in order to reach their target deposit as a result."

Back to: News Index