How to save for a house deposit in seven years (or less)

Saving a deposit for your first home can seem like climbing a mountain. However, if you approach this challenge in the right way, you’ll find it can be conquered.

One of the potential benefits of buying your own home is you may spend less money renting than you would be paying off a mortgage on a similar property.

To make matters worse, money spent on rent is gone forever, whereas when you’re paying off a mortgage, you know that at least some of it is being invested in your home.

Yet you may still find yourself saying, ‘I can’t afford to buy’ as getting a mortgage usually requires a deposit, which can be tens of thousands of pounds.

So, how do you save up that much while paying hundreds in rent every month?

By looking at the figures involved, you can break down this task into manageable chunks and see a clear route to achieving your deposit – and your first mortgage.

How big a deposit will I need?

Property prices vary significantly around the UK but are, on average, £288,000 (as of June 2024) according to the Office of National Statistics (ONS).

Your deposit might be as little as 5% of this or as much as 20% (or even up to 40%), but the larger it is, the better mortgage deal you’re likely to get.

We’ll assume you want a reasonably good deal, and so will aim for 15%, so this means you’re aiming to save a lump sum of £43,200.

The typical first-time buyer is at least 34 years old (although many aspire to become home owners by 30 if possible), so savings will be likely be a priority in your 20s.

The average UK graduate wage is age multiplied by 1,000 – i.e. a 22-year-old can expect to earn around £22,000 and for this to rise to £30,000 by the time they reach 30. This translates into an average wage of nearly £26,000 over those eight years.

Assuming that you can start saving by age 22, then to save up £43,200 by the age of 30, you’d have to save £5,400 a year.

This means putting away £450 per month. Whether or not this is realistic for you will depend, of course, on your other living costs as it may be easier if you can live rent-free with your parents.

Renters, of course, will struggle much more.

Saving a large percentage of your pay regularly may become manageable if you think of it this way: every £10 you receive is actually £8, with the rest going towards your first-home fund.

It may also mean adopting an attitude similar to that promoted by the FIRE movement, where people aim to live frugally for a time to retire sooner. Keeping your goal in mind can help you persist when things get tough.

Is there a quicker way to save up my mortgage deposit?

Fortunately, you can save up that £43,200 deposit much more quickly using a lifetime ISA (LISA). You can open one from the age of 18 and pay in up to £4,000 per year, to which the government adds a 25% bonus (up to £1,000) at the end of each tax year.

So, if you saved at the same rate as in the example above, you would easily be able to pay in £4,000 (the maximum limit). However, there are restrictions on withdrawals if you want to use the money for any reason other than buying a first home (before the age of 60).

LISAs can be a cash or stocks and shares individual savings account (ISA). A cash LISA is the most predictable, and at the moment you can find interest rates between 2.8% and 5%.

If you can save £333 a month (the maximum amount) into a cash LISA paying 3.5% interest, you will accumulate your £43,200 in around seven and a half years.

Of course, if you get a higher rate of interest on your LISA, you can save your deposit quicker than that.

With a stocks and shares LISA, growth depends entirely on investment performance, so it is impossible to predict.

Growth may outstrip inflation, or you may even lose money if the stock market dips significantly. Nevertheless, if you are lucky, you may hit your target sooner.

If your stocks and shares LISA is performing well in year five, it can be a good idea to transfer it to a cash LISA, so you don’t lose those gains. If it’s doing badly, your only option is to sit tight and hope it will rise again.

How about an even faster way to save a deposit?

If you want to trim that seven-year timescale even more, there is the option of buying with someone else.

A couple saving together, with the national average graduate income, could achieve that same deposit in nearly four years.

Alternatively, you might prefer doing it at half the cost over nearly eight years – or both open a lifetime ISA (if you’re both eligible), so you both receive the generous government bonus.

Of course, you don’t have to be a couple for that time you’re saving up. If you’re lucky, you might happen to meet your soulmate at the point when each of you has saved up a significant amount.

You have the option of buying a home with a good friend – or up to three if you choose. As many as four people can own a home together as tenants in common, but bear in mind you’d then need a bigger property, a larger mortgage and a bigger deposit.

Some options exist for people who struggle to save up a large enough sum.

If your parents own their own home, they may be able to help out by guaranteeing your mortgage, in which case you may need only a small deposit or none at all. Find out how parents can help you buy a home.

Saving for a house deposit: at-a-glance tips

1. Use a LISA.
2. Reduce your rent as much as possible (e.g. by living in a house share or flat share).
3. Cut down on other spending by using our savings tips. A few small lifestyle changes can make a big difference over time.
4. Put away savings at the start of the month, just after you’ve been paid.
5. Pace yourself and don’t despair if you miss your monthly savings target.
6. If you’re using a stocks and shares LISA, monitor it carefully in the last couple of years and consider transferring it to a cash LISA if you’re concerned.
7. Don’t access your LISA for any reason except buying a home unless it’s an emergency. You’ll pay a 25% penalty on ordinary withdrawals before the age of 60.
8. Consider buying a home with your partner or a trusted friend.
9. Use a savings app to make the job easier. Some help you identify bad spending habits, while others drip-feed money into your savings.

Saving a deposit for your first home is one of the biggest financial challenges you’ll face in your life – but by breaking it down in this way, you’ll see that it is achievable.

For more help, check out these mortgage tips and our first-time buyer guide. You can also test the strength of your overall mortgage application using our mortgage checklist tool.

Want help getting on the property ladder?

Saving for a deposit on your first home might seem daunting, but with the right plan and a bit of determination, it’s absolutely achievable.

Whether you choose to go it alone or partner up, taking advantage of tools like a Lifetime ISA and making some lifestyle adjustments can get you there faster.

Unbiased can connect you to a qualified financial adviser or mortgage broker who can help you save for your first home or find the right mortgage for your circumstances.