If you’re looking to buy your first house, then you’re probably aware that you need to save up for a deposit. Saving a chunk of cash is often the toughest part of getting onto the property ladder, with many people needing a helping hand from family members. However, there are ways you can boost your savings, without having to cut down on too much of the things you enjoy. First though, it’s important to understand exactly what your deposit is, and how it works.
What is a deposit?
Usually when buying property, you’ll need to put down a percentage of the total purchase price as a deposit. The exception to this is a 0% loan-to-value (LTV) mortgage, although these can be tough to get, especially as a first-time buyer. The more money you can put in as a deposit, the lower the LTV ratio. The lower the ratio, the better interest rate you can get on your mortgage. This is because you’re seen as less of a risk to a lender, as you’ll own more of the property from the start of your mortgage. This means the payments will be lower, and in turn you’re less likely to fail on them. It also means you’re less likely to fall into negative equity if the value of your home drops, which is where your loan is bigger than the value of your home.
There’s no set amount for how much you need as a deposit although the contractual standard is 10%. There are plenty of 90% and even some 95% mortgages out there which allow you to put as little as 5% of the property value down as a deposit. If the house you’re interested in is £250,000, this means you’ll need £12,500 in savings to cover the deposit. As you pay your deposit upon exchange of contracts, you need to have enough to cover both this and the other fees you’ll face.
What other fees are there when buying a house?
If you’re a first-time buyer, there may be certain fees you haven’t come across yet in the home buying process. One of these is stamp duty land tax, although as a first-time buyer, you’re exempt on paying this under certain circumstances You’ll also have conveyancing fees, a payment to the land registry, and fees for searches and surveys to cover, so you’re probably after some advice on how to save for it all.
Tips to help save up for a deposit
Do your sums
There can be a real art and discipline to saving, while the best way to see your pile of cash grow consistently is to save a set amount each month. This needs to be a figure that’s comfortable enough for you to commit to without putting too much pressure on yourself. So for example, let’s say you need £12,000 for your deposit. Saving around £330 a month will see you reach your target in three years. If that sounds like too much, you could aim to buy in four years by saving £250 a month. Pick the best savings account you can with the highest interest rate possible with the access you need, set up a monthly direct debit or standing order, and remember you can always make extra payments or increase your monthly amount if you come into some money or get a promotion at work.
Help to Buy ISA
Speaking of savings accounts, the government’s Help to Buy scheme includes an ISA aimed at boosting your savings for your deposit. You can kickstart your ISA with £1,200 in the first month, and then you can save up to £200 into it each month, up to a maximum of £12,000. When you’re ready to buy your first house, the government will give you a 25% bonus on the total amount you’ve saved. If you’ve saved the full £12,000, you’ll get a government bonus of £3,000 which is paid when you complete. It’s worth noting that the value of the property you’re buying mustn’t be more than £250,000, or £450,000 in London.
If you’re aged between 18 and 40, you can save up to £4,000 a year into a Lifetime ISA. Another government scheme that’s aimed at people saving for either their first house or their retirement, you can get a 25% bonus of up to £1,000 a year if you save the maximum amount. You can claim the bonus each year until you’re 50, but you’ll have to pay a 25% charge if you withdraw money before you’re 60, or if you use it for anything other than buying your first home, unless you’re terminally ill.
Trim your monthly outgoings
Whether you’re partial to dining out in fancy restaurants or sipping cocktails in upmarket bars, there are lots of ways you can bring down your outgoings. Shunning restaurants and takeaways in favour of cooking your own meals is a sure-fire way to save some cash. The same goes for inviting some friends round to your house rather than going on a night out, or limiting your daily coffee intake to just the one cup before you leave for work in the morning. Can you make your own lunch, do without the odd luxury item at the supermarket, or hold off on upgrading your phone or even car for now? Take a look at your own personal spending habits and you could quickly save a large amount.
Move in with your parents
The thought of moving back into your family home may fill you with dread. However, spending a few months or longer rent-free with your parents or another family member could give you a crucial boost as you save up for your deposit. If you’re paying out a small fortune on rent and bills each month, the amount you save will quickly add up after a couple of months. If you’re really lucky, you may even get a few home cooked meals out of it, or discover your dirty clothes magically appear washed and dried back in your room.
After some more home buying advice?
If you’re looking for some more information on the house buying process, take a look at our handy first-time buyers guide. Or, check out our useful flow chart if you’re after some advice on how the home buying process plays out in terms of conveyancing.
Disclaimer: The article above is only a rough guide on tips to help you save up for a deposit.