As the UK housing prices continue to climb, getting a step onto the property ladder and having a deposit for a mortgage needs a bit of thinking about. A report published by the Bank of England in December 2020 highlighted that around 75% of renters are likely to remain renting because they have insufficient funds for a mortgage deposit.
It can take up to 3 years to save enough money for a deposit – even longer if you are wanting to buy in property hotspots such as London, Brighton or Edinburgh. According to high street bank Halifax, the average deposit being paid by a first-time buyer is £59,000 although there are mortgages available that only require a 5% deposit bringing this figure to a more reasonable £13,000.
So if you are thinking about purchasing a place of your own, how can you turn your property owning dream into reality and save for a deposit that is enough in this time of rising property prices, a tough mortgage market and stagnant wages? Here are 5 tips to help you save and get a deposit together.
1. Make it automatic
Just like you set up a direct debit to pay for your heating and phone bills, do the same with your approach to saving. Savers who set up a direct debit into a separate account to come out the day they get paid will save twice as much as those that don’t. App based challenger banks such as Monzo and Starling allow their customers to round up their spending and the balance is paid into a savings pot. Savings apps such as Plum take funds automatically each week based on your spending. Make it automatic and watch your savings grow.
2. Bag the difference
Whilst in Lockdown we spent less as there was little opportunity to socialise and tempt us to spend our money. Over the course of the year many people have realigned their spending habits to reflect this change. If post lockdown your spending habits have remained muted, you have changed jobs and have a higher wage coming in, or you are working from home more and spending less on commuting then save the difference before you get used to spending it.
3. Find savings in your spending
Take a look at your monthly outgoings, including any optional employee benefits that you may be paying for but aren’t using, is there anything you can sacrifice or find an alternative cheaper option? Could you hold on to your mobile phone a little longer and switch to a sim only tariff instead of a contract? If you live in a city can you rely on public transport instead of having a car and save on the running costs and parking fees? Small savings in all areas of your spending could start to mount up and help with saving for your deposit.
4. Be incentivised
Getting the right product and making the most of any government incentive is a quick win to making the most of your savings. If you are under 40 and buying property for the first time you can set up a Lifetime Isa (Lisa). The benefit of a Lisa is that you can put up to £4,000 in it each year and get a 25% bonus from the government that is paid monthly. When you are ready to withdraw the amount for your deposit you pay no penalty. So maxing out on a Lisa and paying in £4,000 for 3 years your £12,000 investment would grow to £15,000 courtesy of the government bonus and that’s before any interest accruing.
5. Get mortgage savvy
The pandemic pulled the plug on high loan to value mortgages but in 2021 the Government announced it would provide the security to lenders in order to enable them to step up the availability of such mortgages for those wanting to get on the property owning ladder. The government’s new mortgage guarantee scheme is good news for first time buyers. More and more lenders are now offering a 5 per cent deposit scheme with the bulk of the mortgage, 80%, being guaranteed against default by the government. In addition, participating lenders must offer the option of a 5 year fixed rate product – offering the borrower the security of predictable repayments for a longer period.
Be aware of the different types of mortgages on offer and the commitment you are making. Your creditworthiness will play an important part in your mortgage application and ensuring you have a good credit score is vital. Read about what a credit score is and how you can improve it.
Despite the focus on saving for a deposit, bear in mind there are other costs associated with purchasing a property. These include Survey costs, solicitor fees, buildings insurance, Stamp Duty and initial furnishing and decorating costs. It’s important that you don’t over extend yourself. Make sure you save enough not just for a deposit but to cover these costs before you start the hunt for your new home.
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