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Flying the nest and leaving behind the comfort blanket of rented accommodation can be a daunting experience. Not only does it mean files and files worth of paperwork– it also means getting finances in check to ensure a smooth run into the world of homeownership.
A good mortgage with low-interest rates can often mean saving up to 20% of the value of the property you wish to purchase.
Since the average first-time buyer needs to lay down a deposit of 10% on their first mortgage, with the average house price in the UK currently sitting at £229,431 (as of May 2019), this would mean them getting their hands on just over £22,943–and that’s even before considering the costs of monthly mortgage repayments. This number can seem quite daunting, and that number can increase or decrease depending on how much the banks are willing to lend you.
Here are some top tips for easy ways to manage to save for your first home:
When considering the type of property you wish to purchase, there are many options out there. However, if you want to save for a smaller mortgage deposit, think about buying a brand new property.
When purchasing a new-build, the minimum deposit is cut in half to 5% (minimum) with the ‘Help To Buy’ scheme.
The ‘Help To Buy’ scheme is available to all new home buyers, not just those buying for the first time. The Government will lend up to 20% of the value of the property, which must be paid back within 25 years (or when the property is sold- whichever is sooner) so a 75% mortgage will need to be secured. Redrow is the largest new-build property agent in the UK and has some beautiful developments as options for the buyer all over the United Kingdom, and are also advocates of supporting ‘Help To Buy’ with lots of information given on their website.
Additional Government Support
If a New-Build property is not for you, then you will need to save a minimum of 10% towards your mortgage. With the average UK home costing £229,431, saving £335 per month for 68 months (over five years) may seem like a daunting task to get the right deposit.
The variable nature of the housing market means that it is hard to predict how much money you will need to support the costs of your new home. It is also hard to predict the job market, and the average salary, which would impact on the amount of money brought into the savings account each month.
Thankfully, there are schemes available to support the first-time buyer, which means cutting a portion of that potential 5-year saving spree.
Help To Buy ISA (Individual Savings Account)
In short- this is a type of savings account which could add extra thousands of pounds into your savings. The Government will add an additional 25% to your savings on top of what you save. When this account is first opened, up to £1200 can be deposited, then a maximum of £200 can be deposited per month.
As far as percentages go, the higher the amount of money deposited into the savings account, the more State support is given. Once again, at a maximum value of £200 per calendar month added- with an extra £50 per month added by the Government. You can get a maximum of £3000 bonus, too!
The time for applying for this type is ISA is running out and must be done before 30th November 2019. Even opening an ISA and depositing £1 to open it can be a great back up- you are able to invest as much as you are able to– and still, generate interest on your investments. However, the more money you are able to deposit upon opening this ISA, the more your interest will grow. These type of savings also enable you to gather 2.6% interest with no tax implications!
Set Up up a Monthly Savings Goal
As with any long-term goal, setting up smaller, more manageable goals can help things seem more achievable. Many banks have mobile apps where the customer can apply for a savings account attached to their main account. Having a savings account can allow you to make more natural deposits from your current account. You can also set up a ‘savings goal’ which will outline the amount of money per month you would need to save in order to achieve this. Setting up smaller monthly installments can help, especially when budgeting the right way. These savings accounts also generate interest over time, which will support saving towards a mortgage.
Saving can be hard when an average of 30-40% of a person’s monthly income is spent on rent alone. Remember that saving towards a mortgage deposit is a long-term investment, and not often something that can be achieved overnight. Even making additional, smaller deposits into your savings account can add up over time.
There are easy ways to budget if you’re setting up a particular savings goal. See an example below:
A monthly salary that equates to £1,800 per calendar month after Tax and National Insurance:
Utilities: £183 (gas, electricity, water- UK average spend)
Council Tax: £127
Leaving: £335 to put into savings per month (£200 in the Help-To-Buy ISA and £135 into personal savings)
Factor in the Additional Costs of Moving
While thinking about the costs of buying the house, there are other costs that will need to be factored in when saving towards a move. This will include removal hire, agency fees, and survey costs once your ideal property has been chosen.
Average UK House Cost according to official figures (Correct as of August 2019):
10% deposit: £22,943
Average mortgage set-up fee £1000
Cost of removals: Cica £500
New furnishings: Circa £1500
Conveyancing/Legal fees: Circa £800
Total costs: £26,243
Cut costs on everyday spending
The above is an ‘ideal situation’ scenario. When considering a Mortgage application, lenders will typically look at three types of spending:
- Committed: regularly occurring costs such as; rent, council tax, travel costs, and utility bills
- Personal: the average spend on food, entertainment, holidays and expenses towards gadgets
- Contingency: When lenders consider the ‘one-off’ costs that might occur, such as payments for car repairs or other cash emergencies.
Tip: Try to commit to doing less ‘Personal’ spending for at least six months before making a mortgage application.
Limit spends on food by doing larger grocery shops less often– meal planning, eating in more, and out less will decrease the spend on good significantly. Shopping around for offers and cheaper, non-branded alternatives with comparable prices will also add up very quickly. Reduce spending extra money on clothes and trainers, and delay holiday plans until you’re in the home.
This proves to lenders that you can budget effectively and shouldn’t have any issues with the repayments.
Location, Location, Location
Money is being pumped into public transport improvements all the time. Not only could this make for a better and more comfortable commute, but it could also mean that areas outside of the standard commuter zone become more desirable. These ‘up and coming’ cities may not have the best reputation, but this means that at the moment, the property is more affordable- make your investments now, and reap the benefits later.
Saving: for Those Who Find it Hard to Save
It is easy to be in a situation where there is too much month at the end of the money. The cost of living, especially in more densely populated areas, is high. With the average monthly salary lower than the costs of living, it can be difficult to make regular payments into a savings account intentionally. Fortunately, apps such as Plum can help you with your savings, even if you are shy about it. Plum gains ‘read-only’ access to your current account and assesses your spending habits, giving you daily insights into what you have spent, and rounding some of those spends up to the nearest pound. There are options to make ‘as and when’ deposits, too. This proves that the pennies really do add up!
Keep track of your spending. Make sure all of your direct debits-including that Netflix bill, come out as close to payday as possible. Then allow for those contingency spends, in addition to birthdays, outings or trips, then give yourself a daily spending allowance. For example, if after all of your monthly outgoings, you have £400 to last you until the next payday (in 28 days) allow yourself £14 to spend per day. Anything that is left at the end of the month can be put away into your savings account.
Saving for your mortgage can be a hugely daunting but rewarding task. There is support out there, even if running to the ‘bank of mum and dad’ is impossible.
Save well, and be proud of your accomplishments when you step over the threshold of your new home!