Saving up for a mortgage deposit
Saving up for a deposit is the first step on the road to buying your new home, but with the cost of renting so high it can be difficult to even thinking about putting money aside. Here’s a quick guide to some simple ways to start to save, and what to do if you still can’t get a large enough deposit.
1. Understand how much you need
Before you even start to think about saving for a deposit you should have a target amount in mind. That’s not as easy as it sounds though as the amount of your deposit will depend on the value of the property you are thinking of buying and the Loan To Value (LTV) of the mortgage that you get.
However, you can estimate how much deposit you need by looking at the average price of the type of property you are considering – although this will fluctuate over time – and working out what size of mortgage you require for a variety of different LTV mortgages. So if your ideal property tends to cost around £150,000 for example you’ll need a deposit of £30,000 for an 80% LTV mortgage but only £7,500 for a 95% LTV mortgage. Remember that typically higher LTV mortgages have higher interest rates, but this is not always the case.
2. Know how much you spend
Before you can think about saving, you need to understand how much you are spending and where. Start by noting down all your income and outgoings. You need to be completely honest, so the easiest thing is to keep a ‘money diary’ for a short period of time and be scrupulous about all those little expenses.
3. Cut back on those little treats
OK, this may not seem like much fun right now, but it’ll be worth it in the end. Now you’ve recorded how much you spend look at where you can make instant savings. Stop buying lunch at work and take something from home. Invest in an insulated coffee cup and forgo the takeaway latte on the way to work. Plan weekly meals so that you can buy all in one go, and switch to a budget supermarket
4. Use technology
Apps are a brilliant way to track how much you are spending. Budgeting apps like Money Dashboard are linked to your bank accounts and allow you to set budgets and even predict how much you’ll have in the future.
If you don’t fancy a specialist budgeting app, make sure you check all the features of your current account. Most will let you set alerts if your balance falls below a certain amount, which is a quick and handy way to make sure you don’t overspend.
It’s been said that people are more likely to get divorced than switch their bank account, but there’s no reason you shouldn’t switch.
When you switch look for an account that gives you better perks, such as better interest rates, access to linked savings accounts or cashback. With many banks and building societies offering incentives for switching, you’ll probably also be in line for some free money just for moving your account.
Switching bank accounts is relatively simple. The Current Account Switch Service ensures that your new bank or building society will transfer everything over to your new account in 7 working days. That’s all outgoings, including direct debits, and everything coming in, including salary. If there are any problems your new bank or building society will sort it out and reimburse any costs.
It’s not just bank and building society accounts though. Take an afternoon to go through all your regular outgoings, including utilities, mobile phone contracts etc., and use a comparison site to see if you could be getting any of them more cheaply.
6. Get more free money
As well as receiving money for switching your bank accounts, there is another way of earning money for doing what you would do anyway. Cashback sites like Top Cashback pay you back a percentage of the money you spend on line when you use selected retailers.
Don’t forget loyalty cards. While they are undoubtedly used to try and encourage you to spend more through ‘special offers’, if you are sensible and only buy what you need they can be good way to accumulate ‘points’ that you can spend either in store or elsewhere. But don’t let points just sit in your account for ages while you spend your money. Use them.
7. Go home
While this may not be an option for everyone but if you can move back with parents you will instantly save on rent as well as bills. Although you’d obviously still make a contribution to their outgoings!
On the other hand, why not see if you can move in with a friend. They might even appreciate the help with their rent if they’re trying to save for a deposit too. Speaking of which…
8. Get a lodger
If you’ve got a spare room a lodger can help you subsidise your rent and help you save toward your deposit.
Before you do anything check that your landlord is happy for you to sub-let a room. Occasionally, once they know you are happy to share, they will let the extra room themselves but lower your rent. So you save anyway.
If you do decide to get a lodger make sure you stay safe by either looking for someone through friends and family, the safest way, or using a trusted website to advertise.
Consider moving into a smaller property or relocating to a cheaper area if you are renting. If you can find a property closer to work you will save money on commuting costs, even if the rent isn’t significantly lower, or you could move to an area with a lower rate of council tax. Make sure you consider the whole picture.
10. Don’t ignore debts
We’ve shown you some quick ways of saving money or cutting down on your housing costs, but don’t lose focus on any debts while you think about saving.
You will undoubtedly pay more interest on debts than you will be able to earn on a savings account, so concentrate on paying any off first. Also make sure that you keep up to date with all regular payments as even with a decent deposit you’ll find it harder to get a mortgage if you damage your credit history.
What to do with your savings
Once you’ve started to make savings the next thing to do is make sure that they are in the right place.
There are numerous savings accounts that can help you build up interest on your savings, and comparison sites such as Money Saving Expert are a good place to start when you’re looking for the right one for you.
However, if you are saving up to buy your first home a Help to Buy ISA could be your best option. When you put money into a Help to Buy ISA the government will add another 25% to everything you save. So for every £100 you save the government gives you another £25. You can receive a maximum bonus of £3000.
To open a Help to Buy ISA you need to be a first-time buyer aged 16 or over. In the first month you can save up to £1,200, and then you can save up to £200 into the ISA every month after that. You’ll need to save a minimum of £1,600 to get the bonus, and the maximum bonus you can get is £3,000. The bonus is payable when you’re ready to buy a home. The bonus is only available on homes worth £250,000 or under, or £450,000 in London, but you can use it with any mortgage – not just a Help to Buy mortgage.
Remember, Help to Buy ISAs are available to every first-time buyer, meaning that if you are planning to buy with a partner, and you are both first-time buyers, you could earn a bonus of up to £6,000 between you to spend on buying your first home together.
Still struggling to get a deposit together?
Hopefully you’ve picked up some useful tips on how to save for a mortgage deposit. We know how difficult it can be but there are always options even if you are finding difficult to put much money aside for a home. At Simply Lending Solutions we regularly work with prospective homeowners who have small or sometimes no deposit.
We’ll look at the options in more detail elsewhere but briefly your options could include:
High Loan to Value Mortgages
We work with a number of lenders who will consider borrowers with smaller deposits. With an experienced broker you could find that you can pick up a high LTV mortgage with similar terms to a standard mortgage
There are a small number of lenders who provide springboard mortgages. These are designed for prospective borrowers who are lucky enough to have a family member, or occasionally a friend, who can ‘gift’ them their deposit. Simply Lending Solutions can give you more details about the exact requirements of the various products.
Help to Buy
This is a government scheme and is offered by lenders in England on new-build properties. If you only have a 5% deposit saved this scheme can provide you with an equity loan to help buy a house.
Again, Simply Lending Solutions’ brokers can talk through your options and discuss your eligibility.
With a shared ownership property you only buy part of the property and rent the rest, usually from a housing association.
While you still need to find a deposit because the cost of, for example, 50% of a property is clearly less than the cost of 100% of a property the deposit you need will also be smaller. If you work in particular sectors, such as education or other public service sector, you may be eligible to access a shared ownership property via a key worker scheme.
If you’re ready to start searching for a mortgage contact Simply Lending Solutions today and arrange your free initial consultation.