5 ways to save for a mortgage deposit

22 July 2020 | Posted by Ellie Austin-Williams

Saving enough money for a house deposit can be a daunting task, however, the good news is that there are a range of options available to get you closer to your home ownership goals. In this guide, we’ll explore some of the schemes that might help you to get on the housing ladder, as well as share some tips to help speed up your saving.

What is a deposit?

Whether you’re a first-time buyer or not, you’ll need to provide a mortgage deposit when you buy a property. A mortgage deposit is a cash lump sum required by a mortgage lender, in order for you to borrow the funds you need to buy the property. The deposit is usually calculated as a percentage of the total value of the property, with the remaining value covered by the mortgage (unless you’re a cash buyer paying in full).

The amount of money you have available for a deposit is important. That’s because the higher the deposit you provide, the lower the amount of money you need to borrow from a lender and the lower your loan-to-value ratio (LTV). The lower the LTV, the better interest rate offers you will be able to access, which can make the mortgage interest payments significantly lower.

As a result of the Coronavirus pandemic and the impact on the housing market in 2020, prospective buyers will currently need a deposit of at least 10% of the purchase price, with many lenders specifying a minimum 15% deposit to approve a mortgage.

The higher the deposit you provide to the mortgage lender, the better the interest rate you are likely to be offered.

How can I get help?

With the average first-time buyer deposit of £43,433 according to Money Supermarket, it’s increasingly difficult for young people to get on the property ladder and so the government has introduced a number of schemes to help. The main government home buying schemes to look into are:

  • Help to Buy Equity Loan
  • Shared Ownership; and 
  • Lifetime ISA (explained in more detail below)

Tips on saving for a house

If saving to buy a house is high on your list of goals, there are many ways you can work towards hitting your deposit target in less time. Here are some top tips on saving for a house to help speed up the process.

Create a spending plan

A spending plan is the best way to keep on top of your finances and make sure you know where your money is going every month. Whether you prefer a spreadsheet or a digital app, find a method that works best for you and keep track of all of your spending and expenses. Look for areas where you can reduce your spending, for example, setting a specific budget for food and social plans. Once you have a plan that works for you, decide how much you can set aside each month and move your savings into a separate account to remove any temptation to spend!

Make the most of government help

Interest rates are at an all-time low, however, there are still ways to make your money grow faster. First-time buyers can open a Lifetime ISA (LISA) which is a tax-free savings account and allows you to receive a government bonus to boost your savings. If you deposit the maximum of £4000 per year, the government will add 25% to your savings. A LISA can be used to purchase your first property if the value is below £450,000, or the funds can be put towards your retirement when you reach 60 years old.

Get your savings to work hard for you

Even if you don’t classify as a first-time buyer or you’ve hit the £4000 LISA allowance for the year, aim to find the savings account with the highest interest rate available. Another option to consider if you’re planning to buy in a couple of years may be fixed-term savings accounts – these can offer slightly higher interest rates in exchange for your savings being locked away for a specific period of time.

Cut your living costs

For most people, the single biggest monthly expense is often rent, which can account for most of your monthly income in the most expensive cities. In some circumstances, moving home to live with your parents or changing your living arrangements can significantly affect your finances and allow you to save much more of your income.

Negotiate, negotiate, negotiate

For many Brits, negotiating can feel like an activity reserved for exotic holiday souvenirs, yet there are plenty of opportunities to negotiate in your everyday life and you can save huge sums. When you have a contract up for renewal – whether it’s for your phone, TV, insurance or something else – set aside a time to ring your current provider. Ask what they can offer you to remain a customer rather than switch to a competitor, and often you’ll find yourself hanging up with a far better deal than you started with.

Key takeaways

  • Saving enough money for a deposit can seem daunting, however, there are many ways you can get closer to your homeownership goal in less time.
  • By creating a spending plan and making sure your money works for you, you can increase the speed of saving towards your mortgage deposit.
  • Remember that the higher your deposit, the lower the interest rates that you will be offered which can save you thousands of pounds in the long term.

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