Saving for a deposit to buy a house is one of the most significant barriers facing potential homebuyers seeking to secure a mortgage.
This handy guide will help take the sting out of the process and help you on your way to your dream home.
How much deposit do I need to save when buying a house?
First-time buyers will usually be able to find a mortgage to cover 90 to 95% of the cost of buying a house. This means the buyer will need a deposit of between 5 and 10% of the house’s overall value to put down and secure the mortgage needed.
What mortgage can I afford with my salary?
As a rule of thumb, most mortgage lenders offer between 3 and 4.5 times your income. For example, someone earning a £30k salary could access between £90 and £135k. If you’re applying for a joint mortgage, the amount you can access increases to between 4 and 4.5 times the combined income.
How do I get started saving for a house deposit?
Saving for a house deposit can be intimidating, particularly before you begin. Sit down, make a rigorous savings plan, and remain disciplined. Here are some steps you can take to help you along the road:
- Start small
Everyone must begin somewhere and making sure you put something aside into savings each month will get you off to the best possible start. Saving as little as £50 per month soon mounts up to £600 per year. Put as much as you can aside as often as possible to boost your savings amount as quickly as possible.
- Lifestyle changes
Small lifestyle changes can quickly add to huge gains over a year. For example, if you buy a coffee at £2.50 daily on your morning commute, that adds up to more than £750 each year. Take the time to see where you could make small savings that would quickly accumulate to a hefty amount of savings towards your deposit.
- Open a good savings account
While the rise in interest rates brought about by the rise in inflation makes borrowing more expensive, the flip side is that some of the most attractive savings account offers have been available for years. Look for a high-interest account to help your money grow as you save.
- Automate savings transactions
Many savings accounts can link to your current account and sweep money across when certain thresholds are met. This can help your savings grow more quickly. Alternatively, set up a regular Standing Order to put savings away before you’re tempted to spend them elsewhere.
- Apply for Government ‘Help to Buy’ scheme
Several government schemes are available to first-time buyers as part of their ‘Help to Buy’ schemes, aimed at opening home ownership to more people. These include shared ownership schemes and assistance such as minimum 5% deposit mortgages.
- Open a Lifetime ISA
Opening a Lifetime ISA allows you to access a 25% government bonus on any savings each year up to a maximum of £1,000. This is an excellent way of saving and getting outside help towards the cost of your house deposit quickly and easily.
- Put your money to work (risky)
Although risky, you could put your money to work by investing in stocks that provide you with regular dividends. This allows you to boost your savings while letting your money work for you.
Aim to save a larger deposit to save on interest rates
Many mortgage brokers look favourably upon those that have been able to save a larger deposit, thus reducing the share needing to be borrowed. If it’s possible to increase the deposit, not only could you be liable to receive favourable interest rates, but your share of equity in the property would be much greater
Always have options: Seek the best deal from various mortgage brokers
Finding the right mortgage broker can be difficult to unpick, given the wide range on offer. It is well worth shopping around and seeking the best deal from several before choosing whom to go with. The more options you have, the better your chance of finding a great deal.
Final word
The good news is that these steps can help anyone wanting to buy their own home take their first steps on the housing ladder, even in these tough economic times. It might be a long road, but it’s worth taking.
Thinking of Moving to St Albans?
If you’re looking to buy a property in St Albans, get in touch with our expert team today. We have over 30 years of experience, helping buyers and sellers across St Albans and surrounding areas to find their ideal houses. Contact our friendly team today at 01727 836561, or browse our available properties in London Colney online.