Saving a deposit for a mortgage can be the biggest hurdle to buying a home. Our top tips could help you speed up the process.
Saving up a deposit for a mortgage can seem like a massive challenge.
From mortgage affordability rules to the increasing cost of renting, getting on the housing ladder isn’t easy for first-time buyers.
If you're struggling to save for a deposit, there are a few things you can do to speed up the process.
The sooner you start planning and saving, the sooner you'll be able to start looking for your own home.
If you have a rough idea of where you want to buy and how much it might cost, you can start working out how much a month you need to save and how long it'll take you.
It's easier to save when you have a goal in sight, but remember the goalposts might move.
The amount you need depends on the percentage of deposit you need to buy your prospective home.
In today's mortgage market you'll need to find a deposit of at least 5-10% of the purchase price in order to qualify.
Having a low deposit could stop you accessing the most competitive interest rates. That means you'll pay more for your home over the course of your mortgage.
In the past, 100% mortgages were an option, but these are now very rare and generally come in the form of guarantor mortgages.
It's a good idea to prioritise paying off debt over saving. If you've got any credit card or loan debt you might want to work towards paying that off before saving for a house.
Although it's possible to save and pay off debt at the same time, prioritising repaying debt will mean making a saving as you'll pay less in interest.
It's important to be realistic about how much you can afford to save a month. For example, if you need to save £15,000 and want to buy in three years' time, you'll need to save £417 a month.
If this sounds unrealistic - and it might be if you're renting - then you may need to extend the length of time you plan to save. Doing this now means you won't be disappointed in a few years.
Saving is all well and good, but it's essential to make sure you're getting the most out of your savings. Place your deposit where you think it'll earn the most interest.
You may be tempted to lock away your deposit for some time in fixed-rate bonds. These may offer higher returns, but consider keeping your deposit accessible so you can use it when you need to.
Think about opening a regular-savings account and depositing a set amount each month. This type of account can be a good way to get competitive interest rates, but watch out for any terms and conditions restricting your access to the funds.
Don't limit yourself to savings accounts. A high-interest current account could be the most effective place to store relatively small amounts of cash.
Many have terms you need to meet to get the interest and avoid fees, but remember that it's possible to have more than one current account.
You might also want to consider investing some of your savings in peer-to-peer schemes. Returns can be attractive, but bear in mind that they're not guaranteed and there's risk to your capital as you won't have the protection of the Financial Services Compensation Scheme.
Above all, make sure you compare interest rates and shop around regularly to maximise your interest return.
It's easier said than done, but the quickest way to save is by putting yourself on a budget.
Take a look at your outgoings and consider how you can reduce them. Could you have fewer nights out each month or do one big shop a week rather than making several trips to expensive convenience stores? Read our money-saving tips for more ideas.
If you're renting and finding it difficult to save, it might be worth considering moving back in with parents or into cheaper rented accommodation.
Both are worth considering. Rent is likely to be your biggest outgoing, so reducing it could make a big difference to the amount you save each month.
If you're already saving as much as you can and still can't make the sums add up, you may need to reconsider buying a home right now.
It's also worth comparing current accounts to see whether you could be getting more from yours. If you're currently losing money on fees, switching to another provider could save you cash. Or switching to an account that offers cashback or rewards for banking with them could help you boost your savings.
Cashback credit cards are also worth thinking about, so long as you know you're disciplined enough to pay off the full balance at the end of each month.
There are a number of government schemes that can help to supplement your deposit, or make the journey to buying your home a bit easier.
The Lifetime ISA lets you save £4,000 each year towards your first home up to the age of 50. The government adds 25% on top of whatever you save, so that’s as much as an extra £1,000 each year.
The scheme is open to 18-39 year olds and you earn tax-free interest on your savings.
You can withdraw money from your ISA if you are buying your first home, aged 60 or over, or terminally ill. However, you’ll have to pay a penalty (currently 20%, increasing to 25% in April 2021) if you use it for any other reason.
Help to Buy is a government scheme that applies to homes in England and Wales.
If you have a deposit of 5% and fulfil the government's criteria, you can either benefit from an equity loan or a mortgage guarantee.
An equity loan provides an interest-free loan of 20% of a new-build home's value on top of your 5% deposit.
A mortgage guarantee scheme allows people with a 5% deposit to have easier access to mortgages, as the government guarantees part of the mortgage to the lender.
With shared ownership you'll still need a mortgage to buy your share of the property, but the mortgage will be a lot smaller.
Shared ownership allows you to buy an initial share of your home and then 'staircase' to own 100%. But beware - this can take a long time and could cost a lot.
You may also be limiting yourself for a number of years, as selling can be difficult.
If you're struggling to get a deposit together and don't know what else to do, you might be tempted to look into borrowing the money for a deposit.
However, this comes with its own set of obstacles. If you need to borrow to get a deposit together, you should be asking yourself whether you're really in a good position to buy a home right now.