You need a deposit — realistically 10% or more if you want a decent rate — plus several thousand for costs nobody mentions. A Lifetime ISA adds a 25% government bonus on up to £4,000 a year, which is £1,000 of free money annually and the best-value account available to most first-time buyers. In England and Northern Ireland, first-time buyer stamp duty relief means nothing to pay up to £300,000 and 5% on the portion between £300,001 and £500,000, with no relief at all above £500,000.
What it actually costs to buy
The deposit gets all the attention and it is not the whole number. Budgeting only for the deposit is the most common way first-time buyers find themselves short in the final fortnight, when the costs are least avoidable.
The gap between £32,000 and £39,000 is the part that catches people. Aim at the larger figure from the beginning and the last month is administration rather than crisis.
The Lifetime ISA
For most first-time buyers this is the single highest-return account available, and it is widely under-used.
- You can pay in up to £4,000 a year, and the government adds a 25% bonus — up to £1,000 a year.
- You must open it before you turn 40, and you can keep paying in and earning the bonus until you are 50.
- The £4,000 counts towards your overall ISA allowance, which is £20,000 for the 2026/27 tax year.
- You can hold cash or stocks and shares in it. For a purchase within about five years, cash is the sensible choice.
Two people buying together can each hold one, which is up to £2,000 a year of bonus between them. Nothing else available to a first-time buyer comes close to a guaranteed 25%.
The bonus is not unconditional. Withdraw for anything other than a first home, reaching 60, or terminal illness and there is a 25% government withdrawal charge — which, because it applies to the whole withdrawal rather than just the bonus, can leave you with less than you put in.
There is also a property price cap of £450,000, unchanged for years and genuinely restrictive in London and the South East. And the account must have been open for at least 12 months before you can use it for a purchase — so if buying is even a possibility in the next few years, opening one with a small amount now starts the clock.
Stamp duty for first-time buyers
Stamp Duty Land Tax applies in England and Northern Ireland. Scotland has Land and Buildings Transaction Tax and Wales has Land Transaction Tax, both with their own rates and their own first-time buyer treatment — check those separately if you are buying there.
| Portion of the price | First-time buyer | Everyone else |
|---|---|---|
| Up to £125,000 | 0% | 0% |
| £125,001 – £250,000 | 0% | 2% |
| £250,001 – £300,000 | 0% | 5% |
| £300,001 – £500,000 | 5% | 5% |
| Above £500,000 | No relief — standard rates apply | 5% to £925,000, then higher |
On a £320,000 purchase, a first-time buyer pays 5% on the £20,000 above £300,000, so £1,000. Someone who has owned before pays 2% on the slice from £125,000 to £250,000 and 5% from there to £320,000, so £6,000. The relief is worth £5,000 at that price.
The cliff edge at £500,000 is worth watching. Relief is lost entirely above it, not tapered, so a purchase at £505,000 costs meaningfully more in tax than one at £499,000. If you are buying anywhere near that line, the difference is worth negotiating over.
To claim, everyone buying must be a first-time buyer, and it must be your only residential property anywhere in the world.
How much deposit, really
5% deposit mortgages exist. They are also priced for the risk they represent, and the difference is not trivial. Lenders price in bands, and the meaningful ones are 95%, 90%, 85%, 80%, 75% and 60% loan-to-value.
Getting from a 5% deposit to a 10% deposit typically moves you a full band and reduces both the rate and the amount borrowed. On a £320,000 property that is another £16,000 to find, which may take another year — and for many buyers that year is worth it, because the saving persists for the whole fixed term rather than being a one-off.
What lenders look at beyond the deposit: your income, usually at four to four and a half times, sometimes five; your existing commitments, since loans and credit cards reduce what you can borrow; your credit file; and affordability stress-tested at a higher rate than you would actually pay. The mortgage affordability calculator models all of that, and it is worth running before you start viewing rather than after.
Getting to the number
A deposit is a savings goal with an unusually large target and a soft deadline, which is exactly the combination people find hardest to sustain. Three things help.
Fix a target and a date
“Saving for a house” is not a plan. “£38,000 by September 2029” is, and it converts into a monthly figure you can either meet or consciously adjust. Our savings goal calculator does the arithmetic including the Lifetime ISA bonus if you add it.
Automate it on payday
Standing order the day after payday, into the Lifetime ISA up to £4,000 a year and a separate savings account above that. A deposit built from what happens to be left at month end takes considerably longer than one taken out first.
Keep the emergency fund separate
Do not let the deposit and your buffer be the same money. If they are, the first broken boiler sets the purchase back six months, and you will feel it as failure rather than as the buffer doing its job.
If some of it is coming from family
Gifted deposits are common and entirely acceptable to lenders, but they need handling properly. The lender will want a letter from the giver confirming it is a gift rather than a loan and that they retain no interest in the property, and your solicitor will need to verify where the money came from. Start that early — it is a routine cause of delay near exchange.
Money that is genuinely a loan from family is a different thing and must be declared, because it affects affordability. Trying to present a loan as a gift is mortgage fraud, and the consequences are considerably worse than the smaller mortgage you would have been offered.
Get a decision in principle before you view
A decision in principle tells you what a lender is likely to offer, takes little time, and stops you falling for something you cannot finance. Estate agents will often ask for one before taking an offer seriously. It is not a guarantee, and the full application can still turn up something, but viewing without one is how people spend six weekends looking at the wrong houses.
After you complete
Buying changes the shape of your finances more than the monthly payment suggests. The mortgage may be similar to your rent, but service charges, buildings insurance, ground rent on a leasehold, and maintenance you now pay for yourself all arrive alongside it. Budgeting for the mortgage alone is the second most common first-time buyer mistake, after budgeting only for the deposit.
Two habits are worth starting immediately. Rebuild the emergency fund, which the purchase will have flattened, and aim higher than before — homeowners need more buffer than tenants, because nobody else fixes the roof. And keep an eye on your loan-to-value, since it falls as you repay and moves with the market; crossing below a lender band before your fixed rate ends can materially change what you are offered next. Our property equity calculator estimates where you stand using the official House Price Index.
Frequently asked questions
About earmarkIQ
earmarkIQ is a UK personal finance app for iOS and the web. It is an FCA Appointed Representative of Finexer Ltd (FRN 925695) and ICO registered (CSN2001882). It connects to UK bank accounts through read-only Open Banking, categorises spending automatically, builds a payday allocation plan, and tracks subscriptions, property equity and net worth. Website: earmarkiq.app