If you’re looking to buy your first home and are unsure how much you’ll need to save, do some window shopping initially. This is the fun part, check out the property prices in your area and have a look at the type of properties you’d like to live in. This will give you an understanding of how much you’ll need to save. As a general ball park figure, you’ll need to save at least 10% of the value of your property. Some lenders will have some mortgage products requiring deposits of as little as 5% of the value of the home but these also come with higher monthly mortgage payments.
It’s not only the deposit you need to consider but the mortgage arrangement fees, stamp duty, surveys and household bills. Mortgage arrangement fees will vary according to each lender and stamp duty will only apply to properties over £125,000. Stamp duty will be a percentage from 1-15% of the property value increasing depending on the price.
Household bills can top £1,200 over the course of the year and a full structural survey could cost £500. Paying for a full survey can actually be beneficial to you, as a valuer will give a full in depth analysis of the property and value it accordingly. If you find that the property is worth a lot less, then you can negotiate the asking price.
When you’ve established an estimate of what you’ll need to save, you can then begin saving. As a general rule, the total cost of your mortgage, credit card and loan repayments shouldn’t exceed 36% of your net income. Sit down and look at your in goings and outgoings each month and work out how much you could realistically set aside each month.
After you’ve analysed your outgoings you may find that your spending money unnecessarily. If you make some small changes you could save yourself some money. For instance making your lunch every day could save you around £100 per month.
It’s a good idea to clear off any debts before you start saving as you’ll end up saving money on interest payments. Paying off debts will help to increase the amount you borrow, and it will free up some of your cash so that you can use this towards mortgage payments.
What can be the steps for saving for a mortgage deposit?
Anyone who is trying to get on the property ladder can face a mountain of paperwork. For the various aspects like they may consider the case of rising house prices and the need to sort out their credit score. The amounts of deposits can be daunting, and on average, it is seen that the first time buyers have to be extra careful with the mortgage loans. We have created a few pointers on how to get your finances on a shape. Follow now!
Monthly standing order
If you can break the entire amount into small, achievable figures, saving for a house deposit can be made much easier. You can also commit to set an amount that you will be saving per month to achieve the complete amount. Indeed, you can also set up a standing order to a savings account and create a monthly debit, so that’s something just after you have been paid!
Starting to save now!
Have you ever been a tenant? If yes, you may be wondering about the savings when you are already spending around 30%-40% f your income on the rent, right? If you are able to raise the cash for a deposit, that may be considered a long-term process for your financial plans. Indeed, oy need discipline and patience to build up the cash reserve in this case. But, even if you think that it would take quite a larger period, well, maybe you are wrong!
Paying less rent
Sounds ridiculous, right? You just have to look around and see if you can find a similar type of house at a lesser rent. Or you can also consider downsizing in a smaller flat. Or the best would be to move to a more affordable area temporarily. In this way, if you are paying $200 as the rent, then annually, that sums up to $2400, so even a small saving can really count for your house deposit!
The idea to Sub-let a room
You can opt for this idea only if your tenancy rule allows you to do so! Why not go for the option to sub-let your space bedroom? Indeed, that can be a good idea for saving a small amount of the rental aspect. This can be an excellent idea for bringing the extra cash for your savings account.
Apart from these, there are various government help schemes that can be equally beneficial to save for the mortgage deposits. Indeed, we are talking about the government help schemes that can be a good idea for getting started with the minimum amount for your house deposit.
Government help schemes
The government always encourages homeownership, right? So they provide different schemes that can eventually help you to get on the property ladder. The summary of the point inclosing this has been highlighted as under.
Shared ownership: This offers the first time buyers to buy a share of a property that is between 25% to 75% of its decided value, and you have to pay the rent on the remaining amount. At a later date, you can consider buying a more significant share as you can afford to do!
The government can loan you 20%of the cost of a newly built home. So, as a first-time buyer, you only need a 5% cash deposit and a 75% mortgage to make up the rest. Indeed, the loan is for five years and is interest-free.
Saving up for a mortgage is a big commitment and may take a number of years to do so. Therefore it’s important that you choose the right saving products in order to help you save this money.
Try and save in a cash ISA, which will give you the chance to earn a decent amount of interest, as it shelters you from having to pay tax on this money. You can save up to £5,640 in a cash ISA each year or £470 per month. Money can still be accessed if you need it.
A regular savings account is a good way of putting money away each month. You could set up a standing order or direct debit from your current account to your savings account. Treat saving like paying for a bill. Set up a certain amount each month to be automatically transferred into your savings account. However, some accounts will only allow you to add a set amount into it each month and restrict the number of times you can withdraw money. Some regular savings accounts require you to put a set amount in each month and if you miss a payment you could lose out on gaining interest. You could get a better rate of interest if you lock your money away for a year or so rather than dipping into it. As it’ll take a while to get the money saved, you may be better off locking it away.
The bottom line
You could also apply for a savings account, which encourages you to save towards a deposit and then lets you have a higher loan amount. You must input a certain amount each month for a specific length of time to meet the bank or buildings societies requirements; this will then enable you to access a mortgage requiring a deposit of as little as 5% with the same financial institution.