Saving for a Deposit
While many homeowners are distressed by the recent fall in housing prices, those trying to save up for a mortgage and get onto the property ladder have no doubt been watching these declining prices with increasing interest. Saving up a lump sum deposit makes sense because it allows prospective homeowners to lower the total mortgage they need to take out, as well as possibly lower the interest rate attached to that mortgage.
Researching property prices, knowing your savings goal, trimming your expenditures and exploring your savings options are all vital steps to saving for a mortgage deposit and starting your life as a homeowner on secure financial footing.
Research Property PricesBefore you can make a plan for your savings and mortgage you must do the necessary research to find out what kind of property you would like to buy and what kind of property you can afford to buy. Hopefully these properties will be similar, but they may not be. Look around property websites, browse newspaper property sections and check in with a variety of estate agents to find out the going rates for all kind of property. Consider the type of home (flat, apartment, house, etc), location of home, size of home (how many bedrooms, bathrooms, etc) and size of full property (home plus surrounding land) so that you can get a real sense for how much different combinations of these variables will cost. Also be sure to research any schemes for which you might qualify, such as the First Time Buyers’ Initiative, HomeBuy options or Right to Buy (council tenants) or Right to Acquire (housing association tenants) discounts.
Know Your Savings GoalOnce you know the approximate prices of the properties you like, you can begin to sort out your own finances. A general rule of thumb is that you should aim for at least 10% of the property price but up to 25% as the lump sum mortgage deposit. Use an online mortgage calculator such as those offered on banks and mortgage providers’ websites to help figure out how much your monthly mortgage repayments would be depending on the amount you put down, the amount of the mortgage and the interest rate attached. Be sure to shop around because different mortgage offers may cause differences in your monthly repayments. Once you have a clear understanding of what you can afford per month you’ll have a better idea of how much you need to save for a deposit for a particular mortgage.
Trim Your ExpendituresNow that you know how much you want to save, look at how you can lower your expenditures and put these savings aside for your mortgage deposit. Smaller steps you could take would include cutting the cost of eating out (including take aways), setting a weekly budget for small items like coffees and magazines, walking to work instead of taking the car or public transport and buying clothing in charity shops or online auction rather than for full price in other stores. You may find, however, that you want to save more money and at a faster pace. Bigger changes such as taking on a flatmate, moving in with family members, selling a car and cutting out holidays could help you achieve this quicker savings pace. If you are interested in taking on a second job to help build up your mortgage deposit then by all means explore this option, just be sure to calculate if the cost of this job (transport, clothes, meals) will make the potential savings worth your while.
Explore Your Savings OptionsWhen you’ve got a nice little savings going for your mortgage deposit investigate how to increase this sum through special accounts or investments. Talk to your bank branch representatives, explain to them your savings goal and ask for a financial review. This should help you learn more about savings options at your own bank, but you can drop in to other banks as well to find out more about their savings and investment options. Just make sure to enquire about the interest that will accrue on your sum, including when and how it is calculated, if there are any monthly minimums or maximums to contributing to specific types of investments or accounts and if there are any restrictions on withdrawing sums from any given investment or account, especially concerning waiting periods before you can access your money and if a withdrawal will affect any interest accruing.
Saving for a mortgage deposit can sometimes feel like a never ending chore, but with a solid plan in place you’ll reach your target in no time. To make sure that you have realistic expectations for your savings be sure to research property prices, know your savings goal, trim your expenditures and explore your savings options.