May 10, 2021
7 min read
On the path to homeownership, few tasks seem more insurmountable than having to save for a house deposit. Making the decision to buy a house isn’t a light one, especially with the average price of a house inching above £266,700 (at time of writing, early 2021). It means you’re going to be taking on significant debt and committing yourself to years of monthly payments. And not to forget the sizeable house deposit you need to get the keys.
But if you’ve started thinking about buying your first home, you may be keen to know how to save for a deposit quickly. Take a look at these money-saving tips to help you squirrel away the cash you’ll need.
A mortgage deposit or house deposit is a lump sum of money needed when buying a home. You’ll need to pay this upfront (so keep it in an accessible bank account). You’ll pay the deposit to your solicitor only when you’re about to exchange contracts and all the details have been finalised. Your solicitor will conduct money laundering checks beforehand, so be clear about where your deposit is coming from (savings, a gift, etc.). Keep all your evidence together so that you can easily show it to everyone who will need to see it (e.g., mortgage lender, solicitor).
You’ll pay for the rest of the property with a mortgage unless you’re a cash buyer.
For most mortgages, you’ll need anywhere between 5% and 20% of the purchase price. If you put down 10% as the deposit, you would have a 90% loan-to-value (LTV) mortgage, enabling you to borrow 90% of the money needed to buy the property.
Since the coronavirus pandemic hit the property market, mortgage lenders have become more willing to accept buyers with a deposit greater than 10%. This has made it tougher for first-time buyers, though not impossible – if you know these handy tips for saving money.
Some first-time buyers find the best way to keep track of their expenses and goals is to put everything in a spreadsheet. Totalling up your actual outgoings against your monthly income will give you accurate numbers of what you can realistically save. Itemising every outgoing may also give you an idea of where you can cut back and save.
Whether you use a spreadsheet or an app, get on top of your finances by setting budgets – and sticking to them.
It goes without saying that cutting out alcohol, cigarettes and takeaways can be easier said than done, but giving up these items can give your savings a significant boost. We’re not saying eliminate all the fun stuff but do consider your outgoings before splurging. We’re also not saying that by cutting down on your to-go lattes is going to leave you with millions in the bank. Instead, going without little luxuries can help you save a couple of hundred pounds a year.
Once you know what you spend monthly, look at where you can cut back. Could you live without a TV streaming subscription, a midweek takeaway or a gym membership? Making these decisions can be tough, so keep your eyes on the prize to stay motivated.
While the Help to Buy ISA no longer exists for new users, the Lifetime ISA is a great scheme to help first-time buyers save for a deposit. It gives you up to 1.25% interest on your savings, as well as 25% when you’re applying it to a home deposit.
The ISA will give you an extra £1,000 bonus on top of a £4,000 deposit each year. If you plan to buy a home as a couple, you can both open a Lifetime ISA each.
Read more about the Lifetime ISA on the government website.
The government can also help you via:
If your parent(s) are willing and able, borrowing some money to help with a deposit could help you get on the property ladder sooner. In this situation, it’s always best to be upfront about whether the money is a loan or a gift. If they expect you to pay it back, discuss how much you would be able to afford each month (but keep in mind the new expenses of a monthly mortgage payment, home insurance, council tax, utilities and more).
For many, borrowing money from family isn’t possible. Fortunately, there are a number of mortgages that allow others to help you buy a property without having to hand over a large cash sum.
You may be able to list a guarantor on your mortgage, where a parent or close family member are liable for making payments if you can’t. Be aware that asking someone to be your guarantor is no small thing as it usually involves using their home as security for your mortgage.
There’s the saying that you can’t have savings until you have no debt. This is true in most cases – until you’re saving for a deposit while paying down debt. Lenders will look at your income and outgoings, including any debt you have accrued, from student loans, car financing and credit cards.
While some debt is to be expected, it’s important that you maintain paying these loans on time and never miss a payment. Defaulting on a loan is never good, but it is sure a red flag for lenders.
If you’re currently renting and need to know how to save for a deposit quickly, then consider moving back in with your parent(s) for a year or so. Not only will you save money on rent alone, but utility bills and food shopping costs, too.
Moving back in with your family is not fun for everyone, nor is it possible for a lot of us. Some alternatives include:
When buying a house, you generally need at least 5% of the property’s value as a cash deposit, if not more. During these times, it’s unlikely that a lender will offer a 100% mortgage. However, there are emerging options such as a guarantor mortgage mentioned above, where you secure a loan against the property or savings of a close friend or family member. Don’t jump into this lightly, as your good-hearted loved one will have to pick up the repayments if you fail to do so.
The deposit amount isn’t the only cash you need to save up. There are other upfront fees of buying a house, including the mortgage arrangement fee, conveyancing costs and stamp duty, as well as the cost of moving your belongings. So be sure to factor all of these in while saving for your deposit.
Now you know how to save for a house deposit quickly and easily, are you ready to find a suitable property for sale? Whether you’re a first-time buyer or a seasoned homeowner who knows what to expect, our nifty tools help to refine your search so you can find suitable properties for sale that tick all your boxes.
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