On average, the first-time homebuyer will need to place a 20% deposit on their home. This means they have to find ways to fund a deposit of around £20,000.
According to The Council of Mortgage Lenders, four out of five Britons prefer to own their home rather than renting. Another 8 out of 10 people who are under 30 seek financial assistance from their parents to help with the deposit enabling them to get a foot on the property ladder.
In this article, you’ll get a step by step guide on the opportunities available to you and ideas on how you could save to get the home of your dreams.
What Borrowing Options Do You Have?
- Your parents – Parents have been for the longest time the first option when it comes to financing. This can be in the form of gifts, informal loans or they can act as co-signers or guarantors to the loan. This means they’ll pay the loan should you default payment.
- Close friends and family – This is another route you can take. You can hook up with some of your family members or friends to buy a house. However, the catch is further down the road, one of you might need a share of the house. How will you handle it?
- Shared ownership – This applies to people who rent a housing association or council property with an income of £80,000 or less outside London or £90,000 inside London. You can buy a home and rent out the rest. By doing this, you reduce the amount you’ll have to pay for the deposit and consequently reducing the size of the mortgage.
- Help to Buy Mortgage Guarantee – You can use these schemes to help you buy an old or new home. This is after you make a deposit of about 5 to 20 percent.
How Much Will You Need to Save Every Month
After understanding how much you’ll need to pay in terms of a deposit, it’s time to calculate the amount you’ll need to put away every month.
A savings plan will come in handy at this point to help you get a better understanding of the amount you will need to save each month. In addition, it’s also important to for you be realistic with what you can afford.
Help to Buy from the Government
Want free money?
As a first time buyer looking to save for a mortgage deposit, the first thing savings tool you should look at is a Help to Buy ISA. Firstly, you can get up to £3000 tax free cash added to your ISA savings when you use it to buy your first home. In addition, you can earn up to 2.58% interest on all your savings tax-free.
There are some limits on the amounts you can add to the ISA.
- You can add a maximum of £1200 in the first Month
- Subsequent months are limited to £200
Once you are at the point where you have enough savings for the deposit on your new home, the government will add 25% tax free cash to the total. However, there are two exceptions to be aware of.
- You will need to have a savings balance of at least £1,600 to get the cash top up. In this case, you would be eligible to receive £400 in tax free cash.
- The maximum cash top up is on savings of £12000. In that case, you would receive an additional cash bonus of £3000 towards your new home. If you have managed to save more than £12000 you can still benefit from the tax free savings element of the ISA, but the bonus payment will not apply to the excess amount.
The governments Help to buyer ISA scheme is currently available until December 2030. This gives you plenty of time to save and still get the Tax free cash top up.
Kick Off the Savings
Once you’ve figured out how much you need to put away, start saving as soon as possible. If it’s more than the maximum amount allowed in the help to buy scheme, you will probably need to open a new account if you don’t have one already.
Obviously, you will want to find an account that offers the best interest rates and make sure that the terms meet your requirements. That will mean a bit of research and the best place to start is probably on comparison websites.
Compare Savings Interest Rates on Comparison Websites
Using price comparison websites will save you a lot of time while also providing you with valuable information on the best savings deals available. However, note that these websites don’t necessarily offer similar results. Therefore, it’s important for you to use more than one to make an informed decision.
Keep an Eye on Your Savings
After a year of savings, check to see whether you’re still getting the best deal in terms of savings interest rates. Also, ensure you use the ISA allowances offered yearly to help you save on the money you’d have otherwise paid in taxes.
The journey to owning your first home can be daunting. However, with a plan, you can achieve the goal even if it takes time. The savings tips listed in this article will help bring the dream into a reality.
Got the Deposit, Now What About a Mortgage?
Once you have saved enough deposit to buy your new home, you will no doubt want to find the best mortgage deal. The key here is research.
Rather than wondering about in your local high street to view the usual suspects, start your hunt online. There are some great mortgage comparison websites like Money Saving Expert which has a good mortgage best buys engine that highlights the best deals they can find and another is Money Supermarket which is probably one of the largest.
Once you have a list of the best mortgage deals you can find, its time to speak with an expert and the best place to do that is with an Independent FCA regulated mortgage broker like The Mortgage Broker Ltd who offers free impartial expert mortgage advice with no obligation to buy.
An independent mortgage broker is not tied to a limited amount of lenders. This means they can pretty much choose from almost any lender in the market and many have exclusive deals and offers that are only available through mortgage brokers. Get them to find the best deals they have available and then compare those with the deals from your own research to find the right deal for you.
By following the tips in this guide you are hopefully on the way to not only getting the home of your dreams but can also rest assured that you have gotten the most from your savings and found the perfect mortgage deal for your needs.