How to save for a house deposit?
The first step to get onto the property ladder is building up a suitable deposit. After the comments from Kirstie Allsopp about cancelling gym members and Netflix subscriptions being the way that everyone can afford a mortgage, we think there are other ways that you’ll be able to save up for a house deposit without cutting out your well loved memberships.
How much will you need to save?
This will depend on the type of property that you’re looking to buy, majority of mortgages require a deposit of 10% however 5% mortgages products are becoming more available.
However, with 5% deposits mortgages, you should bear in mind that the interest rate you’ll be charged will be higher. The reason why it’s higher is because the lender is taking on extra risk when they lend to you at this level and in return, you’re expected to pay accordingly.
If it’s possible, it might be worth saving up a little longer and getting a deposit of 10% or higher because you’ll be able to access lower mortgage rates which can equate to lower repayments and lower interest rates.
How to start saving?
Firstly, figure out how much deposit you need so you have a target to aim towards and then decide on a time frame of when you would like to achieve this. For example, if you’re looking for a deposit of £10,000 and giving yourself 5 years to achieve this that equals £2,000 a year, £167 a month.
Now you have a figure to work towards, you’ll need to figure out how you’re going to be able to save up to that figure.
Reduce Your Spending
The first thing to do is take a look at your current financial solutions to see where changes can be made. Start by working out where you are spending and whether it is essential or not. For example, paying your rent and bills is essential however, eating out and socialising isn’t so much.
From there, you can see what you can cut back on to help with your saving efforts. A good start would be to review your subscriptions and get rid of any that you no longer use such as an old gym membership that you forgot to cancel, a Netflix subscription that you no longer need as you have access to another account.
Also are there any other areas where you can make some cutbacks like reducing your weekly takeaways to every two weeks or making a coffee at home for your commute into work instead of stopping at a coffee shop.
Get into a saving habit
It isn’t always easy setting aside money each month but once you get into the habit, it’ll become second nature and you may not even notice the change. Especially if you’re saving any money through cutting expenses as you would have spent that money anyway.
Once you have worked out how much you can save each money, you could automate it by setting up a regular transfer as soon as you get paid.
Take advantage of any Government Support
The Government has introduced a campaign called “Own Your Home” where you can find Government schemes that are available for you and find out which scheme is right for you.
There are lots of different schemes such as:
- Lifetime ISA (a long term savings product where the Government will contribute 25% on up to £4,000 saved in the account every year)
- Help to Buy: Equity Loan (Help people in England to buy a new build home, the government has an equity share up to 20% or 40% if the property is in London until you repay the equity loan back)
- First Homes (supporting first time buyers including key workers onto the property ladder by offering new build homes at least 30% discounted compared to market prices)
However, it all depends on your circumstances such as your age and whether you live in England, Northern Ireland, Wales or Scotland.
What else will you need to think about?
We thought it would be good to mention that it’s not just your deposit that you need to think about, buying your first home comes with additional expenses such as solicitor fees and moving costs. It’s important to factor these costs into your overall savings plan.
You’ll also need to be aware of your credit score – a poor credit score means you’re less likely to be eligible for a mortgage so whilst you’re saving up, it’s also a good time to work on your credit score.
Why use a mortgage broker?
A broker should be able to quickly source a mortgage product that fits your credit history, affordability, speak to lenders on your behalf and submit paperwork in the correct format for lenders which can speed the process up.
Additionally, there are some lenders who will only work with brokers and offer exclusive deals therefore, individuals will not be able to access them.
If you would like to speak to us for advice on your mortgage, don’t hesitate to get in touch with our team. Call us on 01270 443510 or complete our contact form and a member of our team will be in touch as soon as possible.