6th February 2023
Saving for a mortgage deposit can seem intimidating, especially for first-time buyers who are paying rent and struggling to put money aside. But with the right advice, planning and saving strategy, you could save enough to make your dream of home ownership come true.
As a first-time buyer, consult a mortgage advisor and set a realistic deposit savings goal. Use a separate savings account with a good interest rate, cut back on costs, and research government help to buy. You don’t need a deposit to remortgage, but you need one to buy a second home.
As a mortgage broker, I’ve worked with many people to find the right finance for their first, next or Buy to let property. In this blog, I’ll share my advice and top tips on how to save for a mortgage and get a leg up on the property ladder.
For more personalised advice, please don’t hesitate to get in touch about our mortgage services.
When should you start saving for a mortgage deposit?
With property prices, monthly rent and the cost of living on the rise, the boring answer is: as soon as possible. It takes a lot of discipline to start saving money while you’re younger, but if you dream of owning your own home one day, make a commitment to start saving NOW.
Even if it’s a small amount each month, just do it. It will get you into good saving habits that your future self will thank you for.
What do you need to consider before you save for a mortgage?
As a first-time buyer looking to save for a mortgage, you must first set a target deposit amount. The amount of deposit you save will directly impact the mortgage interest rate you are offered. Generally, a larger deposit will result in a lower interest rate, e.g. a 20% deposit will get you a lower interest rate than if you were to put down 10% of the purchase price.
A bonus tip for you – there’s no real difference in the mortgage deals available between a 15% and 17% deposit, so you may as well stick to 15% or consider going up to 20% to benefit from lower interest rates. (Source Which*)
Where should I put money to save for a house?
It’s a wise move to set up a separate savings account for your mortgage deposit, with a standing order for the same day each month, so the money is transferred automatically.
Individual Savings Account (ISA) vs Instant Access savings account
Your bank no doubt offers an instant access savings account, which may be convenient, but you will pay tax on the interest you earn above your annual personal savings allowance (currently £1,000 for basic rate taxpayers). These types of savings accounts also make it easier to withdraw money, so it may also be too tempting to dip into!
If you are going to be saving over a number of years, consider a Lifetime ISA (Individual Savings Account) instead, as it will earn you more tax-free interest. A Lifetime ISA also affords you a government bonus of 25% on up to £4,000 of contributions each year, tax relief on any interest earned and tax-free withdrawals. Be aware, however, that if you withdraw money from your Lifetime ISA before the age of 60 or for any other purpose than to purchase your first property, there is a 25% charge.
What government loans are available to help you buy a home?
The government incentivise home ownership by offering certain schemes to help people onto the property ladder.
The Shared Ownership scheme gives first-time buyers the chance to purchase a share of a property between 10% and 75%, with rent paid to a landlord on the remaining share. They can opt to buy bigger shares in the future as their finances allow. There are a number of factors which determine eligibility, such as income. The scheme is available to both first-time buyers and existing homeowners. You can find out more here*.
Please be aware that by clicking on the above link you are leaving the Taylor-Brown Financial website. Please note that Taylor-Brown Financial nor HL Partnership Ltd are responsible for the accuracy of the information contained within the linked site(s) accessible from this page.
5 tips on mortgage deposit saving
#1 Have a firm goal and savings plan
The first part of saving for a mortgage is researching property prices and mortgage products to work out the value of the lump sum you need to save. Online mortgage calculators and the advice of a mortgage broker can really help save you time here.
Once you have set your savings goal, create a realistic savings plan with milestones and timelines. It’s not unusual to save over the course of several years for a deposit, so planning like this will help keep you motivated.
Set up a monthly standing order to go directly into a dedicated savings account that’s just for your mortgage deposit. Shop around for a savings account with competitive interest rates, and consider an ISA if you’re saving long-term (see section above).
Don’t be tempted to skip a month or raid your savings account along the way – consistency is key when it comes to building up your savings!
#2 Tighten your belt
I know, yawn. It may be stating the obvious, but trawl your bank statements for any areas where you can save money. If you pay rent where you live, consider moving in with a family member or friends or downsizing to boost your savings. Cancel those unused subscriptions. Shop around to save on utility bills.
If your main job allows, you could always look at ways to make extra money. Side hustles are an increasingly popular way to earn extra cash. If you have a spare bedroom, you could consider subletting it if your tenancy agreement allows it.
This may sound extreme, but it depends on how soon you want to buy your own home. When it comes to saving and making money, every penny will get you to your goal faster.
It’s also important to keep an eye on your credit rating, as most lenders use it as part of their assessment process, and a bad credit score may count against you.
#3 Consider the extra costs, not just the deposit amount
The mortgage deposit is one thing, but as you get closer to your savings goal, it’s important to consider the other costs related to taking out a mortgage, such as solicitor fees, surveys and conveyancing. You may also be liable for Stamp Duty, although first-time buyers are exempt if the property price is below £425,000.
You’ll need to budget for your monthly mortgage repayments, which you also pay interest. Then there is mortgage protection and other protections, such as buildings insurance, which your lender will likely insist upon.
It’s essential that you weigh up these monthly payments and don’t overstretch yourself. A good mortgage broker will help you to find the most affordable mortgage deal that is well within your means.
#4 Don’t be put off by the thought of a huge deposit
If saving tens of thousands seems impossible, don’t be put off. There may still be ways to get onto the property ladder.
- There are huge differences in house prices across the country, so consider widening your search area to find something more affordable. Do your research on up-and-coming areas.
- If you rent through a housing association, you may be eligible to buy your home through the Right to Buy* scheme at a discount on the market value.
- Remember that a 20% deposit is an average – not a threshold. There are higher loan-to-value (LTV) deals out there. Depending on your income, credit rating and ability to keep up mortgage payments, there are lenders that might consider you for a 95% LTV mortgage deal.
- Seek professional advice from a mortgage broker who can guide you through the current government loan schemes available (see section above).
#5 Consult a professional mortgage advisor or broker
There is a lot to think about when saving for a deposit, so it pays to get advice from a reliable mortgage broker like Taylor-Brown Financial. It’s never too early to get in touch with us. We can help you determine how much you could comfortably borrow, what deposit you’ll need and what your monthly repayments may look like.
When the time comes to buy your home, we can help you find the most suitable mortgage deal. We are not tied to any particular mortgage provider and have access to a wide range of lenders both on and off the high street.
The other advantage in opting to talk to us at Taylor-Brown Financial is the fact that we are experts in advising and finding our clients a suitable life policy and can offer life assurance with mortgage protection, especially useful for peace of mind when first stepping on the property ladder or with a young family. In this respect, we can also assist you with income protection allowing you to benefit from a degree of certainty even in uncertain times, such as illness or accident – protecting your income whether employed or self-employed.
We’ll even do the paperwork so you can get on with planning your big move and be there to offer advice until your keys are safely in your hand.
Conclusion
I hope you’ve found this guide helpful and feel enthused about saving for your first mortgage! The key takeaway points are:
- don’t delay; start saving as soon as you can
- do your research or consult a broker and set a realistic deposit savings goal
- it’s boring, but be prepared to cut costs to help you achieve your goal faster
- consider a Lifetime ISA if you are saving over a number of years to earn tax-free interest and government bonuses
- look at government schemes to find out if you’re eligible for help to buy
- remember that a 20% deposit is an average – not a threshold
- the help of a mortgage broker is very valuable to save you time, money and sanity!
Get in touch with Taylor-Brown Financial today
Taylor-Brown Financial is a mortgage and protection broker providing advice to clients in Suffolk and throughout the UK. Our promise is to take the hassle out of the mortgage process and offer a friendly, attentive service.
To book a no-obligation mortgage consultation, please get in touch. We look forward to speaking with you.
The Financial Conduct Authority does not regulate some forms of Buy to Lets. Think carefully before securing any other debts against your home. Your home/property may be repossessed if you do not keep up repayments on a mortgage or other debt secured on it.
There may be a fee for mortgage advice. The precise amount will depend on your circumstances and will be agreed with you before proceeding but estimate this to be £500.
*Please be aware that by clicking on the this link you are leaving the Taylor-Brown Financial website. Please note that Taylor-Brown Financial nor HL Partnership Ltd are responsible for the accuracy of the information contained within the linked site(s) accessible from this page.
FAQs
Can I borrow more if I already have a mortgage?
If you already have a mortgage, you can look to borrow more using your property as collateral. This is known as a second-charge mortgage. How much you can borrow on your existing mortgage will depend on your circumstances, such as your credit history, financial situation and the equity in your property.
This would be through third party referral only.
Do I need a deposit if I already have a mortgage?
If you are looking to remortgage but stay in your home, there is no need to save for another deposit. Also, having existing experience as a homeowner can be beneficial when it comes to securing favourable deals from lenders.
How much should I save a month to buy a house?
House prices vary so much throughout the UK, as does the cost of living, so it is difficult to give general advice on how much you should save.
The average cash deposit for a first-time buyer is 20%, but some lenders will go as low as 5%, depending on your circumstances. So look at the property value in your area, get advice from a mortgage broker and set realistic goals on how much you can afford to save each month.
When do you have to pay a mortgage deposit?
Usually, you don’t have to pay your deposit until you exchange contracts, giving you extra weeks or months to boost your savings.
