If you’re looking to buy your first house, then you’re probably aware that you need to save for a house 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, we explain what a deposit is, and how it works.
What is a deposit?
When buying property, you’ll need to put down a percentage of the total purchase price as a deposit and use a mortgage for the remaining amount. The more money you can put in as a deposit, the lower the loan-to-value ratio (LTV), and the lower the LTV ratio, the better interest rate (and therefore lower repayments) 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.
There’s no set amount for how much you need as a deposit although the contractual standard is 10%. There are 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.
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.
Lifetime ISA
If you’re aged between 18 and 40, you can save up to £4,000 a year into a Lifetime ISA. A 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.
There are other government schemes for help getting onto the property ladder, you can find out more about these help to buy schemes here.
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.
Do you always need a deposit?
The only exception to needing a deposit is when you have a 0% LTV mortgage. These are fairly rare though and can be tough to get, especially as a first-time buyer.
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 (SDLT), 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
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 short video to find out more about what’s involved in the conveyancing process.
Disclaimer: The article above is only a rough guide on tips to help you save up for a deposit.
