There is no escaping the fact that if you plan to buy a property in the UK, you will need to come up with a lofty mortgage payment. The minimum deposit most lenders will accept is usually 10% of the property’s value, but this can go up to 15% or even 20% with some mortgage products.
Data from Barclays suggests that in 2021, the average deposit paid by a first-time buyer in the UK was just over £61,000. This is actually a significant fall from the £71,000 average in 2020 but is still a huge sum of money to come up with.
First-time buyers in London face even bigger obstacles, where the average deposit payment exceeds £70,000 by some distance.
Even so, the race to get on the property ladder remains frenzied to say the least and millions are indeed collecting the keys to their first homes each year. The question is – how does the average first-time buyer come up with the cash needed to fund this down payment?
Sadly, there is no quick or easy way to generate the £60,000 needed, simply to qualify for a mortgage. In fact, it is completely out of the realistic means of almost all average earners.
Coming up with such a huge sum of money takes time, patience, and careful financial planning. According to the UK’s leading lenders, these are the most common means by which first-time buyers access the money needed to meet minimum mortgage deposit requirements:
1. Personal Savings And Investments
First-time buyers often dip into (or completely wipe out) their personal life savings, in order to put the deposit down on their first home. As this is technically an investment as opposed to an expense, the money is not ‘spent’ in the traditional sense, but instead transferred into a different type of investment vehicle.
Speaking of which, National Savings children’s bonds and premium bonds are other common sources of funds for deposit payments; as is a Lifetime ISA, which can bring certain tax benefits when used specifically for the purposes of buying a home.
2. Contributions From Family Members
Research suggests that more first-time buyers in the UK than ever before are turning to the bank of mum and dad, in order to help them get on the property ladder. The average earner these days simply do not have the means to come up with £60,000 or more, without outside help and support.
Parents who own their own homes are currently sitting on small fortunes, with average property prices at an all-time high. Products like bridging loans, equity release schemes, and other secured homeowner loans can be used to release capital from an owned property over the short- or long-term.
3. Sale Of Assets And Personal Property
It is also not uncommon for first-time buyers to fall into the classification of ‘asset-rich, cash-poor. Over the course of several years or decades, an individual or couple may have amassed a wide variety of assets of value.
Everything from jewelry to watches to cars to artwork to music memorabilia can be sold to raise money for a deposit. However, most banks will expect to see evidence of ownership of the assets sold to raise the funds, to ensure they have been raised legally.
4. Bridging Finance
Bridging finance provides a fantastic short-term solution for significant outgoings like these when prompt repayment is possible in the near future. A bridging loan will typically be issued over a term of no more than 6 to 12 months, after which the full loan amount (plus borrowing costs) is repayable.
If you know you will gain access to a significant sum of money in the near future but would like to buy a home today, a bridging loan can be just the thing. Bridging finance essentially provides early access to incoming capital and is easy to arrange with evidence of a viable exit strategy (i.e. how you plan to repay the loan).
5. Lucky Wins
Perhaps the most fortunate first-time buyers on the market are those who paid their deposits with money they won. Lottery wins, a fortuitous day at the horses, maybe even a profitable night at the casino – Lady Luck does occasionally shine on the lucky few.
Sadly, this is neither a reliable nor realistic avenue for most. While the occasional individual may strike it lucky, the other 99.99% of first-time buyers have to source their deposit funds via more traditional channels.