Buying Your First Home: Saving for a deposit
Typically a deposit ranges from 5% to 20% of the full price of the property, this is dependent on the property’s location and the most up-to-date lending rates. For example, a property on the market for £185,000 would require saving of at least £9,250 (5%), resulting in a 95% mortgage. However, to have a greater chance of receiving a better mortgage, a 10% deposit would be preferable. This would mean putting down a deposit of £18,500 and we know as much as the next person that £18,500 is A LOT of money. Therefore, saving for a deposit can be disconcerting, to say the least. We believe, however, mastering the art of budgeting and saving will have you buying in no time.
First and foremost you must determine the amount of deposit you’ll need. After doing so, the next step on the journey to saving for your deposit is having knowledge of the amount of money you can regularly save. This can either be monthly or weekly, depending on your income and expenditure. Putting a budget in place will allow you to decide on areas in which cutbacks can be implemented. Now this won’t be easy, and it will require great discipline and determination, however, it will get you much closer to putting down a deposit on your new home. To budget effectively, you must create a list detailing all of your regular spendings, this may include:
Household bills: rent, utilities, broadband.
Food shopping expenses
Travel and Car expenses
Clothing and shoes
Loan and Debt repayments (including credit card repayments)
After subtracting these expenses from your monthly income, you will have a greater understanding of how much additional income is available to put towards your deposit.
*Make sure to budget for unexpected expenses that are sure to come up along the way such as car or home repairs*
Now that you are a budgeting expert, it’s time to be smart with your money. This can be done by dividing your regular spending into necessities and ‘luxuries’. Cutting back or cutting out luxuries completely can result in massive savings. Small costs that may seem insignificant add up over time, consciously reducing these costs will help you save more money over time. For example, a £2 cup of coffee on the way to work every morning costs approximately £522 each year. For budgeting we recommend Monzo. Monzo accounts allow you to separate your money, allowing you to reduce and track your spending in real-time, making budgeting a breeze (and all from your phone!). Reducing regular frivolous spending may also be advantageous when completing your mortgage application, this is because lenders examine your credit score as well as bank statements to determine your spending habits. Having a good credit score and stable spending habits will work in your favour.
Now it’s clear that with all of this money you are saving, you’re going to need somewhere to store it. Although this may seem like a trivial detail, choosing the right account to keep your savings in is incredibly important. A great place to start is comparison websites, these websites are specifically designed to help you find a savings account that caters to your requirements. It’s important to note that different comparison websites will yield different results, therefore we recommend searching on more than one site before making a decision. Choosing the right account will also allow your money to grow. For example a cash ISA can allow you to save up to £20,000 each year, additionally, the interest earned from a cash ISA is tax-free, getting you one step closer to your savings goal. For first time buyers, the government provides Help to Buy ISAs that increase savings by 25%. Help to Buy ISAs are available in a number of banks and building societies. All that is required is a saving of at least £1,600 to receive the minimum bonus of £400. In total, first-time buyers can receive £3,000 from the government, which you will receive when you begin the buying process.
Our top tips for on target saving:
To stay on track with saving, it may be worth setting up a standing order or direct debit of your fixed saving amount after each payday. This will allow you to save without even having to think about it!
Review your budget regularly to identify possible areas on which you can make more savings.
Couponing and using discount websites such as vouchercodes.co.uk or hotukdeals.com will make a huge difference over time.
Researching better deals also applies to your savings account, don’t be afraid to switch.
To summarise, saving for a deposit can seem daunting and almost impossible, however by creating a solid budget, being smart with your money and choosing a savings account that will help grow your money, you'll be on the property ladder in no time!