Saving for a deposit is the biggest challenge facing first-time buyers who are trying to get onto the property ladder. With house prices at all all-time high in the UK, it’s never been more difficult to buy your first home.
Here, we give our top tips for first-time buyers to save for a house deposit.
How much deposit do you need for a mortgage?
The minimum amount for a housing deposit is typically 5 per cent of the property’s value. However, the higher your deposit, the more likely lenders are to offer you a mortgage. You’ll also get a better deal with lower interest rates and lower monthly costs with a larger deposit.
For a good mortgage deal, you’ll need at least a 10 per cent deposit, with the best deals available for deposits over 20 per cent.
However, new government schemes like the 5 per cent mortgage scheme are making home buying more attainable for those with a smaller deposit.
How to save up for a house deposit
Saving up for a house deposit is increasingly challenging for first-time buyers. Here are some ways you can cut down on your expenses to save for your first home.
Pay less rent – If you are living in an area with expensive rent, you could consider moving to a cheaper area. You could also take in a housemate or move back in with family whilst you save up.
Make lifestyle changes – Cutting back on non-essential expenses whilst saving for a house can help you save up a deposit more quickly. Exercise at home or outdoors rather than paying for a gym membership, cancel costly TV subscriptions and cook at home rather than eating out.
Sell unused items – Selling belongings you no longer need can give your savings a boost.
Get financial help from family members – If you have family members that are willing and able to gift or loan you money towards a housing deposit, this is a quick way to grow your savings. You can also add family members as a guarantor on your mortgage, meaning that their income will be factored in by lenders. They will be liable for mortgage payments if you are unable to pay them.
Get a lifetime ISA
Lifetime ISAs [LISAs] were launched by the government in 2017 to help young people (under the age of 40) save for a property. The money can only be removed to pay for your first home or to fund your retirement.
You can save up to £4,000 in your LISA every year, and the government will add an extra 25 per cent bonus on top. This means that if you save the maximum of £4,000 in a year, you’ll get an extra £1,000 towards your home or retirement for free.
The money in your LISA can be used to buy your first home up to the value of £450,000. If you’re purchasing a property with another first-time buyer, they can also use their LISA savings and bonus.
Buy with a shared ownership scheme
Shared ownership is another government-backed scheme to help first-time buyers get on the property ladder. You will buy a portion of the property – between 10 and 75 per cent – and pay rent on the rest. You are then able to buy more of the property further down the line.
These schemes are run by housing associations, and they will decide who is eligible. For most schemes, you must earn less than £80,000 a year, but there are also minimum income levels you must exceed.
If you are a key worker such as a paramedic, nurse, police officer or teacher, or if you have children, you may be prioritised for the scheme.
Improve your credit score
Lenders will factor in your credit score when considering you for a mortgage, so having a good score can help you get a better deal. If you have a poor credit score, it will be much harder for you to find a willing lender.
Here’s some ways to boost your credit score:
- Register to vote
- Get a credit card and repay it on time each month
- Check your credit file for errors and remove past addresses
- Don’t withdraw cash on a credit card
- Pay off any outstanding debt
Get professional advice
You should seek advice from mortgage brokers to find out how much lenders are prepared to offer you based on your circumstances.
Mortgage advisors have access to information you won’t find yourself, such as lenders’ credit and lending criteria.
At Choice Mortgage Solutions, we help hundreds of first-time buyers to secure their first mortgage every year. We will provide professional, independent advice to help you choose the best deal. We will even apply for a mortgage on your behalf to make the process easy for you.
Get in touch with the Choice team today for expert assistance finding your first mortgage.