For those without the backing of mum and dad, moving up the property ladder is a tall order these days.
Rising house prices relative to incomes over the past 20 years have seen the average deposit size increase by around 160 per cent since 2005, according to the Association of Building Societies.
He says the typical successful first-time buyer now needs a deposit of around £60.00.
However, the average deposit for a first-time buyer ranges from £27,000 in the North East of England to £144,000 in London.
> The step-by-step guide for first-time buyers to get on the real estate ladder
Distant dream: many aspiring homeowners face years of saving to afford housing
When it comes to your deposit, lenders will usually ask for at least 5 per cent of the value of the property and, in many cases, 10 or 15 per cent.
Having a larger deposit as a proportion of the purchase price will mean you own more of your home and could also open the door to cheaper mortgage rates.
The task of saving is made more difficult by the fact that home prices continue to rise.
While average prices have stagnated in recent months thanks to higher mortgage rates, Savills forecasts they will rise 21.6 per cent by the end of 2028.
On top of that, many first-time buyers, particularly those buying in the south of England and London, also have to factor in Stamp Duty Land Duty (SDLT), in addition to normal purchasing costs such as legal and surveying fees. .
Although there is an SDLT exemption for anyone purchasing a property worth less than £425,000, anything above that level starts to be affected. If you were buying a £500,000 property, for example, you would be required to pay £3,750 in SDLT.
> Stamp duty calculator: What tax would you pay to buy a house?
Savings Challenge: Rising house prices relative to incomes over the last 20 years has led to the average deposit size increasing by around 160% since 2005.
If you’re building up a deposit for your home, choosing the right savings account to hold your money could help you reach your goal faster.
We look at the best accounts for first-time buyers, including Lifetime Isas, easy access offers and fixed bonuses.
You can also see the best interest-paying accounts in This is Money’s Best Buy Savings Rate tables, which are updated daily.
What is the best account to save for a house deposit?
Isa of a lifetime
Anyone saving for a deposit to buy their first home should consider putting money into a Lifetime Isa (Lisa).
Savers under 40 can open a Lisa and until they reach 50, the Government will match £1 for every £4 they save, providing a £1,000 bonus on the maximum £4,000 a year they can pay. also tax free.
But there is a problem. The Lisas are intended to help first-time buyers and those saving for retirement, and the rules state that the money cannot be used alone for two reasons:
- Buying a first home costing less than £450,000
- Retire after 60 years
If the Lisa is cashed out before age 60 for any purpose other than buying a first home, or if a first home costing more than £450,000 is purchased, savers may be left worse off.
This is because a 25 percent fine is applied to the amount withdrawn, not only recovering the Government bonus, but also part of the money the saver paid.
Two people buying together can use their Lisa as a deposit, but the £450,000 limit remains the same.
Savings and investment app Moneybox is currently offering the best lifetime cash Isa deal, paying 4.4 per cent.
This offer is available through the Moneybox app. The rate includes a flat 0.75 percent bonus for the first year.
> Read our guide to Lifetime Isas and whether you should stick with cash or invest
Regular savings accounts
A regular savings account allows you to set aside a set amount of cash each month and can be a great way to Start a savings habit.
They often offer good interest rates, but the monthly limit can be quite low and there may be restrictions on who can apply and when the money can be withdrawn.
Big banks offer the best deals for regular savers to their existing current account customers.
For example, the Co-operative Bank and First Direct have a regular saver’s interest of 7 per cent.
The Co-op allows existing customers to save up to £250 each month or £3,000 per year, while First Direct allows up to £300 each month or £3600 over the year.
Over the course of 12 months, a regular First Direct saver could earn up to £136.50 in interest.
Nationwide offers two other notable regular savings accounts, which pay 6.5 per cent, and Lloyds Bank, which pays 6.25 per cent.
Boost: Savers under 40 can open a lifetime Isa and get a 25% government bonus
Easy access
If you have a large amount of cash in your checking account, you should definitely consider switching it to one of the easier-to-access and better-paying savings accounts.
Many easy-access savings accounts allow savers to add and withdraw funds as they need, making them a great place to store money when you’re about to pull the trigger and start looking for a place to buy.
However, some providers impose limits on the number of withdrawals that can be made each year, sometimes allowing you to withdraw cash only two or three times.
It is vital that savers check withdrawal limits before committing.
The best easy-access savings accounts now pay 5 percent interest. With £10,000 saved, that will equate to £500 interest over the year.
The problem with easy access savings accounts is that they offer a variable interest rate, meaning banks and building societies can reduce or increase the rate at any time. However, it is possible to switch accounts to one that pays better if that happens.
With the Bank of England expected to cut interest rates later this year, savings providers are likely to respond by cutting their variable savings rates.
> Find the best savings rates with easy access
Fixed rate savings
Fixed rates could make sense for anyone who isn’t looking to buy in the immediate future and wants to put away a lump sum and watch the money grow.
Fixed-rate savings offers offer guaranteed returns because the interest rate is fixed for a set period of time, usually between one and five years.
However, it means that savers will not be able to withdraw their cash during the set period, which some may consider restrictive. They usually won’t be able to pay more either.
Locked in: Once it’s in a fixed rate savings account, the money typically can’t be accessed until the end of the fixed rate term.
The best one-year fixed-rate savings deal pays 5.22 per cent, which would earn £522 interest on a £10,000 deposit over the course of a year.
For someone looking for a two-year solution, the best deal pays 5.05 percent, while the best three-year solution pays 4.8 percent.
> Find the best fixed rate savings deals
Use an Isa
You may have to pay taxes on the interest you earn if you use a regular easy-access account or a fixed-rate savings offering.
If you are a basic rate taxpayer, you will get the first £1,000 of interest tax-free and then pay 20 per cent tax on the rest. If you are a higher rate taxpayer, you will get the first £500 tax-free and then pay 40 per cent tax on the rest.
That means your after-tax return could be much lower than the overall rate.
One way to avoid the tax problem is to use a cash Isa account. You can save up to £20,000 into an Isa each tax year, and any interest you earn is sheltered from tax.
Get a better deal: Savers using a cash Isa will protect any interest they earn from the taxman
Many of the best rates are close to what you’d get with a standard taxable savings account.
Currently, two savings and investment app providers, Plum and Chip, offer the best easy-to-access cash Isa.
Plum pays 5.17 percentbut restricts savers to just three withdrawals a year. Chip pays 5.1 percent without restrictions.
If you’re happy to keep your money for a while, there are also fixed rate Isas.
Currently it is possible to obtain a rate of up to 4.77 percent with a one-year fixation, up to 4.63 percent with a three-year fixation and up to 4.41 percent with a three-year fixation.
> Check the best cash Isa rates
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