Five top tips for saving for a mortgage deposit
Saving a deposit for a mortgage can be challenging, with some mortgage lenders requiring at least 15% of the total mortgage value as a deposit for first time buyers. As of December 2019, the average house price in the UK is around £230,000[i], meaning you could have to save up to £34,500 to pay for a deposit for your first home.
Here are five, practical steps you can take to save for a mortgage deposit:
1. Reduce your rent
To free up additional funds, you may want to consider reducing the amount of rent you pay each month.
You could do this by moving in with parents or other family members for a period of time, downsizing to a smaller home or even house-sharing with friends or colleagues.
As a result, of reducing living expenses you can free up money to save towards mortgage deposit.
2. Create a realistic monthly budget
To get control of your money and avoiding overspending, it’s a good idea to create a realistic monthly budget, see the 'spending and budgeting blog'. This budget should include necessary spends, such as rent, travel or bills, an amount to spend on leisure and an amount to save each month.
By creating a realistic budget, you can avoid overspending and ensure you can afford to save each month to contribute towards your mortgage deposit.
3. Be clear on the amount you need to save
Before considering a mortgage, do your research. Have a look at the properties you may be interested in purchasing and get a good understanding of the average cost of a property of this kind.
Once you know the cost, work out what the average deposit amount for a house of this kind would be and use this as your savings goal.
You can then use this to plan the amount which you need to save each month and understand how long you may need to save for before applying for a mortgage.
4. Save in a Lifetime ISA (or another savings ISA)
The Lifetime ISA (LISA) allows you to save up to £4,000 each tax year. This amount can go towards your first home or your retirement fund. The government will then add 25% on to the amount you save, meaning you could receive up to £1,000 as a government bonus annually by saving in a LISA.
LISAs also allow you to earn interest on whatever amount you save and – as it is an ISA – the interest on the account is tax-free.
WARNING: Savings in LISAs can be subject to potential charges and should the funds be withdrawn for any purpose other than to contribute to a mortgage or a retirement fund, there will be no government bonus issued.
5. Cut down on luxuries
When saving for a mortgage deposit, it’s important to understand that you may have to go without extravagant holidays or eating out regularly with friends.
Rather than completely eradicating any ‘luxury’ spends, you could include an amount for leisure within your monthly budget, which can include an amount to spend on visiting restaurants or even an amount to save each month to contribute to a holiday.
If you would like further advice on how to save for a mortgage deposit, get in touch General Enquiry or call 0121 285 8528.
You may have to pay an early repayment charge to your existing lender if you remortgage.
As a mortgage is secured against your home, it could be repossessed if you do not keep up the mortgage repayments.