Tips On How To Save For Your Mortgage Deposit

 

Saving for a deposit is an essential part of buying your first home. It's the portion of the total property price you'll pay upfront, influencing things like the interest rate and mortgage deal your lender might offer. So, it's important to start saving for a deposit as soon as you can.

Here are four steps from Quealy & Co Financial Services Ltd. to help you save effectively and get valuable tips on saving for a mortgage.

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Determine how much deposit you will need.

When it comes to saving for a mortgage deposit, bigger is often better. It can make you appear less risky to lenders, potentially giving you access to better mortgage deals at lower rates. Typically, most lenders ask for a deposit between 5% and 20% of the purchase price.

Once you know how much you need, you can create a plan to gather the funds. An online calculator can show how much you might borrow based on your deposit. Try out different amounts to see how they might affect your mortgage deal.

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Evaluate your mortgage deposit options.

Having a clear and achievable plan can make saving for a deposit seem less daunting. Exploring the available options can help you figure out the exact amount to save.

Consider these mortgage options:  

• Gifted deposit: Has a family member offered to help with your deposit? Include this in your savings goal, so you know exactly how much more you need to save.

 

• Lower deposit: Thanks to the government’s Mortgage Guarantee Scheme, you might need to save less. A 95% mortgage will only require a 5% deposit.

 

• First Home Scheme: Are you a first-time buyer? You could qualify for the government’s First Homes scheme, helping you buy a new build property in England at a lower price and reducing the required deposit.

 

Find out more about available government housing schemes.

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Consider paying off your credit cards and debts

Before you start saving, it's wise to focus on clearing high-interest credit cards and debts. Once they're paid off, you'll have more money each month to put toward your savings account.

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Start saving for a mortgage deposit

After calculating how much you need to save, it's time to choose where to save it. Think about setting up a dedicated savings account just for your mortgage deposit. This way, you can keep your long-term financial goals separate from your immediate spending.

ISAs offer a tax-free savings option. The government’s Lifetime ISA scheme lets you boost your savings with a 25% bonus, up to £1,000 a year.

Saving for a mortgage might seem overwhelming, but there are strategies to help you reach your deposit goal:  

• Reduce everyday spending: Small changes in daily expenses can really add up over time. Check your spending to see where your money goes each month and find ways to cut back. It could be as simple as ending unused memberships or setting lower budgets for eating out and shopping.

 

• Simplify saving: Make saving easier. Set up a standing order right after payday, so money automatically goes into your savings.

 

• Cut down on bills: Reducing your bills can free up extra cash. Compare mobile and broadband packages, switch energy bills to cheaper tariffs, and cancel unused music and TV subscriptions.

 

• Explore options to earn extra income: Increasing your income can grow your savings without impacting your current spending. Consider taking on extra part-time work, perhaps. Just ensure your employer is okay with it. If necessary, file a self-assessment tax return for any additional income.

 

• Maximise your savings: When did you last check the interest rate on your savings? If the term has ended, consider renewing for a better rate. Compare your current savings account with other options.

 

• Understand the 50-30-20 rule: This rule can help you manage your budget. Allocate 50% of your income to essentials, 30% to non-essentials, and 20% to savings or debt repayment. Reducing non-essentials can boost your savings even more.

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What to Do While You Save for a Deposit

While you're saving, take steps to boost your chances of mortgage approval when the time comes.

For instance:  

• Maintain long-term employment with a steady income, or be self-employed for a minimum of one year with at least one year's income declared to HMRC through a tax return.

 

• Register on the electoral roll

 

• Maintain a good credit history

 

• Have all necessary paperwork ready (a mortgage broker can tell you what this includes)

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Get Advice On How To Save For A Mortgage Deposit

Feeling overwhelmed? There are services and groups offering free advice on savings, finances, and mortgages.

These include:

• The Money Advice Service
• Citizens Advice

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We're also here to help with any questions you have about mortgage deposits. Reach out to our friendly team at Quealy & Co Financial Services.

Call us: 01795 505761

Email us: mortgages@quealy.co.uk

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Your home may be repossessed if you do not keep up repayments on your mortgage.

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Quealy & Co Financial Services Ltd. is authorised and regulated by the Financial Conduct Authority No. 919693