FirstHomeCoach Insight Report: First-time buyer myth-busting

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Our latest research was featured in The Times article ‘Five first-time buyer myths you shouldn’t believe.’ Here we share some of the findings from our report.

First-Time Buyer Myth

Many prospective buyers believe that in order to get a good mortgage deal and save some money it’s best to put down a big deposit. Well, using FirstHomeCoach data, we have proven that this is NOT the case – at least when it comes to buying anywhere outside London. Our data showed that:

  • The average deposit first-time buyers are putting down is 10% more than needed
  • First-time buyers could save £114 per month on their mortgage with a 5% deposit
  • First-time buyers could save the deposit they need in 18 months, not 6 ½ years as many were led to believe

We observed that over 40% of our FirstHomeCoach app users had already saved up at least 5% of the value of their desired property price, and that they had enough income to support a 95% LTV (loan to value) mortgage.

However, in 2021 first-time buyers put down an average deposit of 18-24%, according to Halifax. This meant that people were potentially saving up a much bigger deposit than they actually needed to – which got us thinking…

Myth busting with FirstHomeCoach data

What if you had bought a house with a 5% deposit in 2017 instead of waiting until 2021 to buy with a 20% deposit? Would you have been better or worse off today? So we set out to get all the answers, and here’s what we found.

Regional advantages

In every region, except for London, buying with a 5% deposit in 2017 would’ve been better for you financially by 2021. This is compared to saving for 5 years and putting down a larger deposit in 2021. The reasons for this are:

  1. Property prices are rising faster than most people can save monthly – In the period between 2017 and 2021, prices increased by tens of thousands of pounds – which is added value for first-time buyers on top of the 5% deposit they put down.
  2. Buying earlier means you start paying off your mortgage sooner – A first-time buyer who bought in 2017 will have made mortgage repayments for five years by 2021. This will have reduced their outstanding mortgage amount and increased their equity in the property.

Final word

Whilst saving a 20% deposit will get you a better mortgage rate and lower monthly repayments, it’s worth considering buying with a 5% deposit if you’re struggling to save more. Putting money aside for a large deposit can take several years to achieve and, as our analysis shows, it’s not always the best option.