Saving to buy your first property can be daunting, but having a clear and realistic plan can make it feel much more achievable. The first step is work out how much you need to save. Your mortgage deposit is by far the biggest thing you’ll be saving towards. It will usually need to cover at least 5% of the cost of the property, with a bank or building society lending you a mortgage to cover the rest.
It’s also important to remember to factor in other costs such as valuation fee, conveyancing fees and buildings insurance; but don’t worry we’ll go over that later.
Tips on how to save for a mortgage deposit quicker
After working out how much you ideally need to save each month, you should set a plan for how to achieve it. Here are some ideas:
1. Reduce your bills
Perhaps the most satisfying way of saving money is to reduce your outgoing bills. You can do this by:
- Switching your energy bills to cheaper tariffs, if your landlord will allow you to do this.
- Shopping around for cheaper mobile phone and broadband packages.
- Checking your council tax – if you live alone, and in a few other circumstances, you can get a discount on your council tax bill.
- Cancelling unused subscriptions, eg- streaming services, gyms, clubs and magazines.
2. Cut down on everyday spending
It might seem obvious but making small changes to your everyday outgoings can really add up over time. Take time to check your bank statement and have a look at what you’re spending on. Some apps such as Monzo and Starling automatically break spending down into categories, which makes the process easier.
Perhaps you hadn’t realised that the daily cup of coffee you buy costs you £600 a year. Identifying any areas you can cut back on will significantly help you. For example taking coffee from home in a thermos flask can free up substantial amounts of money to be put away in your deposit fund.
3. Earn on the things you do spend on
Use loyalty cards to your advantage; for the most part they are free and easy to set up and what’s not to love about that? You could also consider taking out a cashback credit card, which will enable you to earn a percentage of what you spend in the form of credit on your bill.
To maximise the benefits of a cashback card you should use it for all your everyday spending but pay off the balance in full every month, as the interest you’ll be charged could outweigh the cashback you earn. Using a credit card responsibly will also help to improve your credit score – important for when you apply for a mortgage.
4. Consider using a saving/budgeting app
There are a number of apps that will funnel away your spare cash, building up your funds for a deposit. Some apps, such as Monzo and Oval, can round up your spending to the nearest pound and deposit the difference into a savings account.
Other apps, including Chip, Plum and Cleo, use an algorithm to analyse your financial behaviour and decide how much you can afford to spend. The downside of these apps is that they don’t usually pay interest on the amount you’re saving. So, once you’ve saved, you should transfer the funds to an account that does pay interest.
5. Assess your renting situation
A more dramatic step, but if you’re in the position to do so it could potentially save you the most money. An increasing number of people saving for their first home chose to move back in with their parents.
Assuming this move will mean you pay below-market rent (or even none if you’re very lucky) and spend less on bills and food, you could save hundreds every month and reach your deposit goal much faster.
Of course, we understand that this isn’t an option for everyone – but changing how you rent could also save you money. If you currently live alone, you could save a significant amount on bills and rent by moving into shared accommodation. However, if you want to keep your own space, you could consider moving to a cheaper area. Although this could mean a longer commute, check whether the extra travel costs would outweigh the savings in rent.
6. Make extra money
Increasing your income is another way to boost your mortgage deposit savings. There are countless ways you could do this, from freelancing in your spare time to selling stuff you no longer use. Be aware that you may have to submit a self-assessment tax return and pay income tax on any extra money you have coming in.
Savings Accounts
In order to see your savings grow, you ideally want to save them in an account offering a rate that beats inflation; otherwise the cash will end up losing value over time. While there’s nothing wrong with a traditional savings account, if you’re saving a large sum of money you may have to pay tax on the interest your savings generate.
If you deposit your savings into an Isa, they’ll remain tax-free. If you save into a Help to Buy Isa or lifetime Isa, you could also get a government bonus of up to 25% on your savings when you buy your first property. The Help to Buy Isa scheme has now closed to new applicants. However, savers with existing Help to Buy Isas can continue to use them (and benefit from the 25% bonus) until December 2030.
Things to do while you save
While you’re busy saving for a deposit, there are also things you can do to improve your chances of successfully getting a mortgage once you’re ready to apply. Mortgage lenders are more likely to say yes if you:
- Have a regular income and long-term employment
- Have a good credit history
- Are on the electoral register
- Have all your paperwork prepared.
This isn’t to say that you won’t be able to get a mortgage if you’re self-employed or have a bad credit history, but it could make it harder to get a decent rate but this is something you would need to discuss with a mortgage broker.
What to do if you can’t save a big enough mortgage deposit
Even if you meticulously stick to all of your budgeting plans, sometimes reaching your savings target can remain out of reach. The good news is there are multiple options out there including; Hep to Buy Equity loan and Shared Ownership to name a few.
For more information and to start your search for a new home, contact us today on 01634 968111 to talk to one of our friendly mortgage specialists!
