How to overcome the homeownership hurdle

14 April 2008

The difficulty first-time buyers experience when trying to get a foot on the housing ladder is well documented. Rapid house price inflation over the past decade has meant many people have had to stretch their budgets to the limit in order to get into the property market.

Government initiatives – like shared ownership schemes – have attempted to help, but one of the biggest boosts for first-time buyers was in 1999 when Northern Rock launched a mortgage that lent up to 125% of a property’s value.

By summer 2007, 125% mortgages were quite common across the marketplace with some first-time buyers relying on these high loan-to-value products to buy a house without the need to save for a deposit.

However, the credit crunch, downfall of Northern Rock and subsequent shake-up of the mortgage market has seen lenders scrabbling to exit the 125% market – in just one week in March five top mortgage lenders pulled their ‘deposit-free’ mortgages. And not long after, lenders offering 100% mortgage also started to scrap their offerings - Abbey was the last lender to allow borrowers loans up to 100% of a property’s value until 7 April when it also made a hasty exit.

Bank of Ireland and Bristol & West continue to offer a 100% deal, but to qualify first-time buyers must get their parents to guarantee their loan. And lenders such as Nationwide, Halifax and Barclays (through Woolwich) will lend mortgages up to 95% of a property’s value, but borrowers will have to pay more for these.


So, the best bet for first-time buyers hoping to get a mortgage is to save for a deposit. Of course, the bigger deposit you have the lower the mortgage rate you have to pay. But, at the very least, first-time buyers will need to save 10% of a property’s value before making an offer.

How much this is depends on the price of the house you want to buy. But the latest figures from Nationwide suggest the average cost of a property in the UK is current £179,110 – meaning a deposit of £17,911 is needed.

Using’s saving calculator, it’s easy to work out how long it will take to save this amount – but the results might shock you.

If you opt for the discipline of a regular savings account such as Principality’s 7% AER account and set up a monthly direct debit of £500, then it will take you two years seven and a half months to raise the deposit needed.

Of course, if you are savvy you will also save in an ISA alongside a regular account – but even if you opt for Scarborough’s competitive one-year ISA paying 6.3% AER, then you’ll only shave six months off the total time needed to raise your deposit.

Obviously the more you can put away the better – alongside a regular savings account and an ISA you need a standard savings account that offers a good rate of interest and terms that suit your circumstances. You can find the best products with’s daily saving round-up.

Boost your savings

By cutting back on your day-to-day expenses you will be able to put more of your earnings away in a savings account. Budgeting doesn’t have to mean economy beans and nights in with just a book for company – there are loads of ways you can cut back without feeling like you are depriving yourself.

To find out how much you could save, simply arm yourself with a pen and the latest copy of your bank statement. Once you’ve circled all your essential spending – things like rent, bills and credit card payments – you need to analyse what is left.

You can identify all your spending into three categories:

  1. Essential spending (things like rent and bills that must be paid each month)
  2. Semi-essential spending – this is spending that you can’t avoid (for example, food) but can be reduced
  3. Non-essential spending – clothes you don’t need, that morning coffee or the gym membership you never use.

Your next goal is to cut out all category three spending – and put the money you’ve saved into your savings account.

Secondly, think about how you can reduce the amount of money you spend on category two items. For example, could you be a bit more frugal at the supermarket?

For more ways to budget read our article of detoxing your finances.

Or registered users can download our free guide to saving and budgeting.

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