How much first-time buyers need to save for a deposit under Your First Home scheme - and how to do it faster

Saving for a house deposit can feel like an uphill struggle, with many aspiring homeowners facing years of saving before they have enough to buy.And for those without the Bank of Mum and Dad to lean on, the property ladder might feel even further out of reach.On September 26, the government announced the Your First Home scheme that allows first-time buyers to get on the ladder with just a 2.5 per cent deposit.An equity loan worth 20 per cent of the property's value will be made available, reducing mortgage costs in the first few years of home ownership – though it will only be interest-free for a limited period and will need to be paid back. We spoke to mortgage and property experts who gave their thoughts on the new scheme and explained how aspiring homeowners can reach their house deposit goal sooner.Long haul: First-time buyers face saving for several years to get on the ladder - but they can speed things up by picking the right account and taking advantage of Government helpHow much are first-time buyers currently saving? A first-time buyer's deposits vary depending on how expensive house prices are in their area, and how much they can borrow as a mortgage. Data from mortgage broker L&C finds that the average first-time buyer puts down a deposit of almost £70,000. On an average-priced home of about £272,000, this would equate to a 26 per cent deposit. If the buyer saved £250 per month, it would take approximately 16.5 years to reach this target amount – and that is assuming they kept their savings in an account which earned interest of 4 per cent. Increasing monthly savings to £750 would reduce the timeframe to just under seven years, while saving £1,200 per month would cut it to around 4.5 years. How does Your First Home work? At the moment it is possible to put down a deposit of as little as 5 per cent with many high street lenders, in some cases even less. The Your First Home scheme could offer deposits of as little as 2.5 per cent, but on new-build homes only. Crucially, the Government would also provide an equity loan of 20 per cent of the property's value. This is similar to the old Help to Buy scheme, although that required buyers to save a 5 per cent deposit. The equity loan would be interest-free for a set period, meaning the buyer can take out a smaller mortgage and benefit from lower monthly payments in their first years of home ownership. Interest will kick in at some point, however, so buyers need to plan to afford those payments or to remortgage or sell their home to buy out the Government. You need to be over 18 years old and not earn over £80,000 a year before tax or £90,000 if living in London.The new-build first home cannot cost more than £250,000 or £420,000 if the property is in London. More details of the scheme for will be unveiled in this month's Budget.David Hollingworth, associate director at L&C Mortgages, says: 'Your First Home looks as though it will follow on from the previous Help to Buy schemes. 'The terms will be important to understand once published but with an equity loan and a smaller deposit requirement it could reduce the twin challenges of building a deposit and being able to borrow enough.'However, an equity loan is still a loan and not free money. Even though the Help to Buy version was interest free initially, it did carry a cost after five years and when the property is sold the same proportion of sale proceeds will be repayable.'Tom Simpson, managing director of homes at Yorkshire Building Society, adds:'Reducing the minimum deposit from five per cent under the previous Help to Buy scheme to 2.5 per cent is a meaningful step forward. 'For someone buying a £300,000 home, that potentially halves the upfront deposit from £15,000 to £7,500.'More details of the Your First Home scheme will be provided by the Chancellor at the Budget in October. How much do you need to save?A 2.5 per cent deposit on the current average UK house price of £272,000 would be around £6,800, according to Moneyfacts data.In London, where the average price is £554,000, a 2.5 per cent deposit would be £13,850.In Yorkshire and Humber, where the average price is £208,000, a 2.5 per cent deposit would be £5,200.On top of any house deposit, you also need to cover any legal fees, a valuation and survey, plus moving costs. This could cost anywhere from £1,500 to £5,000.Some buyers may also have to factor in stamp duty, although first-time buyers are exempt if the home they purchase is worth below £300,000.Calculate how much stamp duty you would pay here. Could you put down an even lower deposit? Some lenders now offer products designed to help buyers with a small, or even no, deposit. For example, a growing number of mortgages are available for deposits starting from £5,000 and up to 98 or 99 per cent of the purchase price for eligible borrowers. There are even some deals that require no down payment.Higher income multiples could increase borrowing powerWhen buying with a small deposit, you need to make sure you can borrow enough money to cover the rest of the purchase price. Normally, lenders will give mortgages equal to 4.5 times the borrowers' salary - but if you have a small deposit or are buying alone or in an expensive area, this may not be enough. Some lenders will now give out mortgages worth 6 or 6.5 times the borrower's income. Buyers will need to show it’s affordable and should also consider how comfortable they are taking a larger borrowing over the longer term.What about negative equity?While smaller deposits and higher borrowing limits can help make home ownership more accessible, prospective buyers should also be mindful of the associated risks. Taking on a larger mortgage means higher monthly repayments and a smaller deposit means a higher loan-to-value ratio.The smaller the deposit, the higher the chance of negative equity will be. Negative equity is when house prices fall and a home's value drops below the amount of the mortgage secured on it. This may be a problem if they need to sell or remortgage. Where should you save your deposit? A cash Isa is a good option, as you can put in up to £20,000 per year and any interest earned will be tax-free. However, that is only the case until April 2027, when the Government will reduce the threshold to £12,000 for under-65s. A Lifetime Isa could be an even better option for some. These accounts allow first-time buyers to put in up to £4,000 each year and receive a 25 per cent Government bonus of up to £1,000 on their cash. However, there are penalties if you withdraw the money and don't use it to buy a home. There is also an upper property price limit of £450,000 for those using the accounts. The Government has said it will launch a new version of the Lifetime Isa in April 2028, and is running a consultation to work out what that will be. Savers with existing Lifetime Isas can keep using them after that time. Rachel Springall, finance expert at Moneyfacts, says: ‘If you are eligible, open a Lifetime Isa early, as it must have been open for at least 12 months before you can use it to buy your first home. ‘If you contribute the maximum for three years, you could build a £15,000 pot, which includes £3,000 in bonuses.If you save in a non-Isa savings account, you may have to pay tax if you are a basic rate taxpayer and earn more than £1,000 in interest per year. If you're a higher rate taxpayer, you could have to pay tax on interest above £500. However, the amount you need to have in your pot to start paying interest is relatively high.Earning £1,000 in interest would require you to have about £25,000 in your account, if it paid an interest rate of 4 per cent - so not all savers will hit that threshold. This is Money explains tax on savings interest here. Springall says: ‘There are several types of savings products you could consider when building your house deposit, including a Lifetime Isa, easy access account, regular saver and Cash Isa.‘The key is to look at how much you can realistically save each month, how soon you might need the money, and which account is most suitable for your circumstances.'Where to get advice Even if you have not saved your full deposit yet, a mortgage broker can give you valuable advice on how much you might be able to borrow based on factors such as your earnings, outgoings and credit rating, and any Government schemes you might be eligible for. Tom Simpson of Yorkshire Building Society says: 'My advice is to speak to a trusted, regulated mortgage broker as early as possible, even if buying still feels some way off. 'They can help you understand what you might be able to borrow, which options are available and what you actually need to save for the kind of home you want. 'Checking your credit report, managing existing borrowing and planning for the other costs of buying can also put you in a better position when the time comes.'SAVE MONEY, MAKE MONEYUp to £300 cashbackUp to £300 cashback£25-£300 cashback on at least £3004.64% cash Isa4.64% cash IsaTrading 212: 1.04% fixed 12-month bonus£2,500 cashback£2,500 cashback£250-£2,500 cashback when opening SippUp to £150 cashbackUp to £150 cashbackOpen a savings account with at least £5,000Welcome bonusWelcome bonusGet up to £200 when you invest £100Affiliate links: If you take out a product This is Money may earn a commission. 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