How to save for a mortgage deposit for your first home
Discover the art of saving for a property deposit along with expert tips on budgeting and schemes to expedite your journey to buying your first home.
Determining the Cost of Your First Home
Saving for your initial property can be a formidable task, but crafting a clear and practical plan can make the process more attainable. The foremost step is to calculate the amount you need to save.
Your deposit stands as the most significant element you'll be accumulating. Typically, it should cover at least 5% of the property's cost, while a mortgage from a bank or building society caters to the rest. Investigate property prices in your desired location using platforms like Rightmove, then utilize our borrowing calculator for a preliminary estimate of your potential borrowing amount.
Typically, lower income results in a smaller mortgage offer, necessitating a larger deposit than the standard 5%. Collaborating with someone else enables you to apply for a larger mortgage and potentially accumulate a more substantial deposit.
Additional Expenses to Consider
Consider potential changes in commuting costs, contents insurance, and utility bills. Additionally, account for expenses related to decorating and furnishing your new home, contingent on the desired level of modifications.
Strategies to Accelerate Deposit Savings
Once you determine your monthly saving target, establish a plan to achieve it. Here are some suggestions:
Reduce Bills
Trimming your outgoing expenses is a gratifying method of saving money. Achieve this by:
- Switching to cheaper energy tariffs (if your landlord permits).
- Comparing mobile phone and broadband packages for better deals.
- Investigating potential council tax discounts, especially if living alone.
- Cancelling unused subscriptions such as TV, music streaming, gyms, and magazines.
Cut Everyday Spending
Small adjustments to daily expenditures can accumulate over time. Review your bank statements, categorising spending using banking apps for clarity. Identify areas to cut back, like making coffee at home or limiting monthly clothing purchases.
Earn on Expenditures
Utilise loyalty cards and consider a cashback credit card for earning credits on your expenses. Pay off the balance monthly to avoid interest charges and boost your credit score, crucial for future mortgage applications.
Explore Saving/Budgeting Apps
Several apps automate fund accumulation for your deposit. Some round up spending to the nearest pound, directing the difference into a savings account. Though lacking interest, these apps can serve as interim storage before transferring funds to an interest-bearing account.
Assess Your Rental Situation
Consider significant changes to your living arrangement, like moving back with parents for potentially lower rent and reduced living costs. If solo living, explore options like getting a lodger or moving to a flatshare. Even relocating to a more affordable area might yield savings, but factor in potential commuting expenses.
Generate Extra Income
Increasing your income provides an additional avenue for deposit augmentation. Explore freelancing, online selling, or renting out unused items. Be prepared for tax obligations if generating additional income.
Saving Strategies: Lifetime ISA, Regular Savings, and Investments
For optimal savings growth, choose an account that outpaces inflation. Consider:
Lifetime ISA: Offers tax-free savings, with a potential government bonus of up to 25% when purchasing your first property.
Regular Savings Account: Provides attractive interest rates but may have withdrawal restrictions. Ideal for systematic monthly savings.
Instant-Access vs. Fixed-Rate Savings Accounts: Balance accessibility with interest rates based on your lump sum and the time required to complete the deposit.
Investments: While potentially offering higher returns than traditional savings, investing carries risks. Weigh the potential gains against the risk of value depreciation, crucial for timely property acquisition.
Activities While Saving
Enhance your mortgage approval chances during your deposit-saving period by:
- Maintaining a regular income and stable employment.
- Cultivating a good credit history.
- Being on the electoral register.
- Ensuring all necessary paperwork is prepared.
Addressing Inadequate Deposit Savings
If reaching your savings target seems unattainable, explore alternatives:
- Collaborate with friends or relatives for joint property purchases.
- Seek financial assistance from parents, either as a gift or a loan.
- Consider guarantor mortgages, leveraging a family member's property or savings as collateral.
- Explore Help to Buy equity loans for additional support.
- Investigate shared ownership schemes for purchasing a partial share of a property.
Commencing the House-Hunting Journey
Before embarking on house-hunting, assess potential locations, considering factors like house prices, quality of life, and schools. Register with estate agents, obtain a mortgage agreement in principle, and delve into finding the right mortgage type.
Selecting the Ideal Mortgage
Research and evaluate various mortgage options based on your circumstances. Seek advice from an independent, whole-of-market mortgage adviser to explore the most suitable and economical deals.
Concluding Your Rental Agreement
Transitioning from a rented property to your purchased one involves practical considerations, especially if bound by a fixed-term tenancy agreement.
Plan your departure as follows:
- Review Tenancy Terms: Check your tenancy agreement for terms and conditions, which may vary.
- Ending Fixed-Term Tenancy: If no break clause exists, early departure may require landlord consent or finding a replacement tenant.
- Serving Notice: Provide written notice, following specified methods in the agreement.
- Flexibility with Landlord: Inform your landlord of your situation for potential flexibility.
- Financial Preparedness: Have savings for potential rent and mortgage overlap during the transition.
Navigating the intricate process of saving for a mortgage deposit demands diligence and strategic planning. By employing these methods, you can work towards achieving your homeownership goals.
