Things are looking up for first time buyers after this year’s decision to scrap the stamp duty on the first £300,000 of properties worth up to £500,000 on those new to the property ladder. However, despite this huge cut to the first-time buyer’s bill, saving for a house is still a hugely daunting process.
Saving money for a home is hard to do, so we have compiled some ideas to help you save your deposit and get you on the property ladder quicker!
Saving for a house – money, money, money
It takes time when saving for a house and many first-time buyers are caught out by paying high-levels of rent and, therefore, being unable, for a longer period of time, to save up for their own home.
Latest figures suggest that around 1 in 3 first time buyers rely on the bank of mum and dad for help raising a deposit to get their first step on the property ladder. In fact, the average age of a first time buyer in Britain is now 35 years old.
Buying a home is one of the largest purchases we make in our lifetime and, therefore, may take further research and planning in order to make the right decision.
A help-to-buy ISA is an excellent means of getting on the property ladder.
Also referred to as a first-time buyer savings account, a mortgage ISA or save to buy scheme, help-to-buy ISAs offer those new to the property ladder the opportunity to earn up to 2.27% tax-free interest and also have 25% free cash for your first property, added by the state.
This is a great method for first-time buyers to save the minimum deposit for a house.
Average deposit for a house
Here at Quick Move Now, we often get asked the question “How much deposit do I need to buy a house?”. The answer to that is generally between 5% to 20%, ultimately, if your first home will cost £200,000, you’ll need a deposit of £10,000. However, this may differ if you, or your partner, are self-employed, or haven’t been in your job role for at least 2 years.
Ultimately, your lender wants to know that you have the income to pay back your mortgage without going into arrears. There are various deposit amounts and mortgage terms that can be applied to different situations to make your pay back options suitable for your situation. For example, you may have a large deposit and be self-employed, or you may have a smaller deposit but a highly-paid full-time job.
Don’t forget the further costs of buying a home
Once you’ve secured your mortgage and saved up a deposit, you’ll also need to budget for the following:
- Utility bills (Can you afford this every month along with the mortgage payments?)
- Life insurance
- Home/buildings insurance
- The process of moving (removal vans and men)
- Any DIY work that needs doing on the house
- Estate agency fees
- Soliciting/conveyancing fees
- The valuation for your mortgage broker
- Stamp duty (only if your property is worth over £500,000)
10 mortgage brokers you may want to consider:
Getting a 100% mortgage is unfortunately a thing of the past; for a long time many lenders would only entertain the idea of giving you a mortgage if you had a deposit of around 20%. But now things are settling down there are some deals on the market for those with smaller savings if you shop around.
There are different types of mortgages out there, these include: Interest only and repayment mortgages, fixed term and variable.
Your mortgage lender will expect you to know which mortgage you’d prefer and will make you an offer based on your income and personal situation.
You may want to consider applying for a mortgage with the following 10 brokers, of course there are plenty of others available, however, take a look at these for reference:
- Lloyds TSB
- Yorkshire Building Society
- First Direct
- Royal Bank of Scotland
- Post Office
Other options for people with little to no savings but still want to own a house
If you still feel saving a deposit and buying your own home is a stretch too far for your budget, there are other options available to those who have little savings but want to own a home:
Buy a house with someone else
This may be an obvious choice for those with little to no savings. By pooling your money with a friend or a loved one, you will be in a much better placed to find a good mortgage deal. It is a huge commitment, however, and you will need to trust the person before jumping into anything.
Its important to make sure contracts and paperwork are watertight in case one of you wants to sell, if there is a dispute or if one of you is taken ill
Mortgage deeds can be held in joint names – meaning you will both own and be responsible for the whole of the property. Alternatively, you can be named as tenants in common, which means you each own a specific percentage and are responsible for that only.
Help to Buy scheme
This is the government backed initiative to help people buy a home with only a small deposit. The scheme is available to all first time buyers, on any property worth up to £6000,000 with just a 5% deposit. The government provides an equity loan for up to 20% of the value, which is initially interest free.
As a borrower you then need only apply for a mortgage of 75% of the value of your purchase. You can repay the loan at any time or once you have sold the property. Here are a list of mortgage lenders currently offering help to buy loans.
Shared ownership schemes
Entering into a shared ownership scheme, allows you to buy part of a house, usually around 25-75% and then rent the remaining percentage back from your developer or local authority. The obvious downside to these schemes are that you don’t own the whole property, however, you do normally get the opportunity to buy out the remainder once you are in a position to do so.
These schemes are usually only available on specified properties and you must ensure you factor in the rent you will have to pay on top of your mortgage repayment into your financial planning.
Not everyone is eligible for shared ownership schemes with priority given to ‘essential services’ such as teachers, police officers and fire fighters or families on low incomes.
New build home – developer deals
Some property developers have got savvy to the fact that people just cannot afford to buy the homes they are building nowadays. So some offer their own loans, sometimes even interest free deals are available. Some developers are even open to negotiating a bespoke deal.
Conditions of these schemes vary dramatically and you will always need to pay very close attention to the small print and the terms and conditions
This requires finding someone, such as a parent or family member who would be willing to act as a guarantor and make sure you make your monthly mortgage repayments. Your selected guarantor will need to have some collateral before the lender will consider this option. But because this is a less risky option for the bank you should normally get a good deal.
So there you have it; there are the best ways to save a deposit for your home and get on the property ladder quickly.