How to pay for a house deposit in 5 years

Important information -  the value of investments and the income from them can go down as well as up, so you may get back less than you invest.

For many younger adults today, the biggest financial hurdle they face is getting on the housing ladder. 

Since the financial crisis, first-time buyers have had to put down a sizeable deposit to secure a home loan at a competitive mortgage rate. But saving for this deposit has become increasingly difficult, thanks to spiralling house prices over the past decade. 

According to Halifax — the UK’s largest mortgage lender — the average first-time buyer put down a deposit of £61,090 last year and typically paid £311,034 for their first home. This is a deposit of almost 20%¹. 

House prices vary significantly across the UK. But even in Northern England, which has some of the cheapest housing in the UK, the average deposit for a first-time buyer was in excess of £30,000 last year². 

Building a savings pot of this size can seem daunting, even for those on reasonable salaries — and this task is not made any easier by the high cost of renting in many parts of the country, and the recent cost-of-living crisis. 

But with a clear plan, the right savings and budgeting tools, a committed approach to saving — and potentially some help from the bank of Mum and Dad — it can be possible. 

Here are some tips for would-be first-time buyers, and parents looking to help their offspring onto the housing ladder. 

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Set a clear target 

First of all, you need to think about what sort of mortgage your earnings will support — and compare this to the price of typical first-time buyer properties in areas you’d like to buy. 

This should give you a clearer idea of the likely deposit you’ll need. For example, if you’re looking at properties priced at £250,000, a 20% deposit is £50,000. It may be possible to secure a mortgage with a 10% or even 5% deposit, but this is likely to mean higher mortgage rates, which may make it harder to clear a mortgage lender’s affordability tests. 

Having a savings goal can help you calculate what you need to be putting aside each month. Don’t forget to budget for other associated costs — such as stamp duty and legal fees. If you are unsure how much you are likely to be able to borrow, it is worth talking to a mortgage broker or using one of the calculators available on lender or popular property websites. 

Look at LISAs… but consider other tax-efficient savings 

Once you have set a target, you need to find the most appropriate savings account to be putting money aside each month. For those committed to saving for a house deposit, a Lifetime ISA (LISA) is a good starting point — though it isn’t suitable for all prospective buyers. 

LISAs allow savers under 40 to contribute up to £4,000 a year, and they will get a 25% government bonus to add to their savings. 

If you are buying with a partner, you can both take out a LISA, invest the maximum (if funds allow), and pool funds together for a deposit. 

But there are a couple of important caveats to bear in mind. Funds can be withdrawn for a first-home purchase, or accessed penalty-free after the age of 60. Any other withdrawals incur a 25% charge, which not only claws back the government bonus but also a slice of the saver’s own contributions. 

To further complicate matters, at present, LISAs can only be used to purchase a property priced at £450,000 or less — a maximum limit that has not shifted since the product was launched 10 years ago. This can cause problems for some in parts of London and the South East. Some savers have found themselves caught by this limit due to rising prices. If they want to use their LISA savings to buy a more expensive property, they pay a penalty to access their money. 

If you are worried about the maximum limit, or want more flexibility around access, look at other ISA options instead. There are no government bonus payments on Cash ISAs or stocks and shares ISAs — but there are generally far fewer restrictions on withdrawals and, as with LISAs, all gains are tax-free. 

Get the best return you can… but don’t take too much risk with your money

If you think you will need this money within the next five years, then stick to low-risk savings options. This means keeping your LISA or ISA savings in cash or opting for a regular deposit account. Shop around to get the best rate you can, review regularly, and move money into a better-paying account when necessary. 

Given the difficulties of amassing a savings pot worth tens of thousands of pounds, some may be tempted to take a gamble and invest in higher-risk investments in the hope of boosting returns and reaching their savings goals more quickly.

Stocks and shares have historically delivered higher returns over longer time frames, but it can be very volatile over the short term. For this reason, if you’re looking to buy a home by 2030, you shouldn’t invest your money in equities, as there’s a significant risk that a market downturn could derail your plans just when you are ready to buy. If this is true of equities, it’s even more true when it comes to high-risk completely unregulated assets like cryptocurrencies. Stay clear and stick with cash.

• Read: Cash ISA versus cash funds: the basics
• Read: Cash ISA versus a Stocks and Shares ISA: the basics

Get better at budgeting

To help you stick to your plans, set up a direct debit so monthly savings are transferred out of your current account and into a separate savings account on payday, so you’re not tempted to dip into them. Keep track of day-to-day spending and try to identify potential savings. It’s easy to lose track of regular subscription payments, for example. Each may seem fairly insignificant on its own but cancelling two or three and pooling this money into your ‘house fund’ can start to make a difference over time. Similarly, check you are not paying over the odds-on regular bills — such as utilities or insurance. 

There are a number of apps that can help you with this, and many banks offer smart spending tools to keep you on top of your budget.

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Family support

More than half of first-time buyers now have financial support from parents or grandparents³. Typically, this is a gift of money towards the deposit.

But there are other ways parents can help. There are now mortgages that will take the parents’ income or the equity in their property into account — helping buyers meet tough stress tests on affordability. For parents, this can be an effective way to give a helping hand without depleting their own savings. Again, these are specialist products, so seek advice and further information about these mortgage options — particularly about the potential liability for parents if their children were unable to meet mortgage payments.

Alternatively, many parents see their grown-up children return to the family home, for little or no rent, to help them save for a deposit. 

For both adult children and parents, it is important to have an open discussion around finances, and what may, or may not be affordable when it comes to helping them onto the housing ladder.  

If parents are gifting money, they need to set out whether this is a gift or a loan — and the potential impact on other siblings. Many parents naturally want to help, but they should be careful not to put their own financial future in jeopardy. 

If you’ve got a burning question you want to ask, why not drop us a line. Ask us your question.

Read more from this series:  

• How to save for university costs — in just 10 years
• How to pay for a wedding in 10 years
• Investing versus saving: the basics

¹ Lloyds Banking Group. 14.02.2025  
² Unbiased. 11.02.2025  
³ BBC. 05.05.2025