How to save for a house deposit

With UK house prices continually creeping up and some first time buyers now looking at having to save for nearly 8 years for a house deposit it is no wonder the concept of saving for a house deposit can be very daunting. At Windsor Hill Mortgages we have put together some of our advisor’s top tips to help you save for a deposit and get your foot on the property ladder in no time!

house deposit saving

Is it better to put down a bigger deposit on a house?

Despite 95% mortgages making a recent return which is great for individuals who may not have the time or ability to save up for longer periods of time, at Windsor Hill Mortgages we would always recommend saving up as much as you can for a house deposit. There are a number of benefits to saving a bigger deposit if you are able to.

  1. Afford higher value property

Most mortgage lenders will allow you to borrow between 4 and 4.5 times your salary, your deposit amount will be an addition onto the mortgage amount you can borrow meaning that the more deposit you have to add on top, the higher value property you can afford to buy. Some lenders even allow you to borrow 5- 5.5 times your salary if you have a big enough deposit. So essentially, you might be able to get a bigger mortgage with a bigger deposit.

  1. Cheaper monthly repayments

If you have a bigger deposit then this can mean that you will need to borrow a smaller amount for the mortgage. Borrowing a smaller loan will mean than your mortgage repayments will be lower allowing you to save money.

  1. Higher chance of your mortgage application being accepted

When applying for a mortgage, lenders will undertake affordability checks to identify whether the mortgage is affordable based on your income and outgoings. Having a bigger deposit could mean that you will need to borrow less and therefore it is more likely the mortgage will be viewed as affordable and increase the likelihood of the application being accepted. A bigger deposit will also be viewed more positively on your credit file by the lenders and therefore there will be less chance of your mortgage application failing on credit issues.

  1. Less chance of falling into negative equity

When you own more of your home outright the chances of falling into negative equity is greatly reduced. Negative equity is where you owe more on your mortgage than your property is worth. People can find themselves in negative equity if house prices fall and the value of their home decreases. Being in negative equity can make it hard to move house or switch mortgage provider.

 

Windsor Hill Mortgages Tips for saving a house deposit

Move home/house share to reduce rental costs

The most obvious and potentially most effective way to save yourself money to put towards a deposit is to reduce any rental costs you currently have. The average rent in the UK is now at a record high of £1,007 a month, this is a huge chunk of money that could be used to save for a house deposit. Moving back in with parents or family would be the most ideal way of saving money that you could then set aside each month for a house deposit. However we do understand that this is not always an option for everyone. If you are unable to move in with family then choosing to downsize or move to a house/flat share will also help you to save a sizeable amount on your rent each year.

Help to buy/Lifetime ISAs

Help to buy ISAs are savings accounts that can be very helpful for first time buyers trying to save up a mortgage deposit for their first home.  With a Help to Buy ISA you can pay £200 per calendar month into the account and add an initial contribution of up to £1,000 when you first open the account. With Help to Buy ISAs, the government will pay you a bonus towards the purchase price of the property of 25% up to £12,000 meaning you could earn an additional bonus of up to £3,000. It is important to note that the bonus is paid on completion of the property purchase so can’t be put towards the exchange deposit.  Help to Buy ISAs are no longer available to new applicants, however you can open a lifetime ISA instead which has very similar features and benefits to a Help to Buy ISA.

Purchase with a partner or friend

Having a partner or friend to purchase a property with can make it easier. Not only can you combine your deposit amounts but it also means that both incomes will be considered in the mortgage application so you could be able to borrow more. There are important factors to consider when deciding whether to purchase with a friend or partner and it is also necessary to have an exit plan should the worst happen and the property need to be sold. It is essential that both people involved are transparent about their finances and are honest about their long term intentions for the property so that there are no surprises for either party further down the line.

Open a separate savings account – best savings account interest rates

Having a savings account separate from your current account can be a good idea as you may be less likely to spend your savings unnecessarily. It can also help to set aside money for your savings account on payday as you are likely to put away more, in fact it is estimated that people who do this save on average 114% more a month than people who do not.

The bank of England’s base rate is at a record low, and although this is good news for borrowers, for savers it is less than ideal. Currently many savings accounts offer rates as low as 0.01% however there are still banks offering rates up to 0.5%. See below our top 3 easy access savings accounts to consider – rates were correct at time of blog publish.

  1. Cynergy Bank: 0.5%
  2. Charter Savings Bank: 0.5%
  3. Nationwide: 0.45%

The higher the interest rate the more money the bank will pay you for keeping your funds in the account. It is important to look at all criteria of savings accounts to find the most suitable for you including details other than interest rates.

Gift deposits

Although a gifted deposit from family members is not available to everyone, they can significantly speed up the process of saving for a housing deposit depending on the amount. They can be used for the whole deposit or just a part of it. Lenders do prefer the gifts to come from immediate family members such as parents or grandparents and having a gifted deposit from friends or long-distance family can slow down the process.  Lenders will also request proof that the money is a gift and not in fact a loan that needs to be repaid or that a stake in the property is not expected from the gift giver.

Download a budgeting app

There are a number of free budgeting apps available to download to your smart phone, these apps can be a great help when trying to manage your finances and keep control of your spending.  Many of the apps allow you to view all of your accounts in one place and also groups your spending so you can really see how much you are spending and on what. We recommend sticking to FCA approved apps.

Regularly check your bank statements

It can be easy to forget or even avoid checking your bank statements but keeping an eye on your out goings each month is a key first step in the home buying process. Although checking your account regularly is good for security reasons it is also important to see where your money is going. Do you have old subscriptions coming out each month for a service that you no longer use or want? Since the pandemic the average person living in Britain spends an average of £55 a month on subscriptions, this adds up to nearly £700 a year so keeping on top of these expenditures can save you a lot in the long run.

 

How can we help?

There are a number of things that you can do to help cut back on your expenditures allowing you to set aside a little bit more each month, remember little amounts can soon add up (that goes for saving and spending!). Our advisors will quickly be able to identify if there are any areas of your finances that should be reviewed to potentially save yourself money.

 

 

If you would like some extra help to figure out your finances and see how much you can afford to borrow speak to one of our friendly advisors on 01225 962456.