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Saving for your first deposit

POSTED: 10th July 2015
IN: Personal Guides
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With rising property prices, saving for a deposit has never been quite such a challenge for first time buyers. Gathering the necessary funds together to afford a home requires commitment and dedication.

undefinedThankfully, for those with dreams of home ownership, saving for a house or flat is still possible. By assessing their finances, making the most of savings accounts, and choosing the right mortgage deal, prospective buyers can save the money they need for a deposit.

How much do savers need?

By researching property prices in their area and finding out how much they’re entitled to borrow, buyers can make it easier to set manageable saving targets. 

Generally, mortgage providers are unlikely to lend people more than four times their salary. Online mortgage calculators can give buyers an indication of how much they can borrow. However, by contacting lenders directly, buyers can gain a better understanding based on their individual circumstances.

Once buyers have found out the size of mortgage they can get from a lender, it can be easier to calculate how much is needed for a deposit.

Bigger deposits, better rates

In most cases, putting down a larger deposit can lead to better interest rates for buyers than if they were to put down a smaller sum.

Larger deposits could also encourage providers to offer a mortgage in the first instance, as a larger proportion of the property’s price will be covered upfront.

Buying sooner with a smaller deposit

Home buyers can purchase a home with a little as a five per cent of the property’s price, thanks to the government’s Help to Buy scheme. This means that someone buying a home for £200,000 would need just a £10,000, deposit providing they meet the necessary criteria.

Research from housing charity, Shelter, suggests that some first-time buyers have to save for around 10 years for a deposit on a house. So, for those who are unable to save a large amount of money in a desired time frame, the Help to Buy scheme could see them move into their new home sooner than expected.

Assessing budgets

Setting a budget can allow potential buyers to see exactly where their money is being spent and enable them to assess where savings can be made. By looking through recent bank statements and receipts, they  can estimate how long it will take to gather together the money they need.

Setting up a direct debit from their current account to a savings account could also help savers to focus their savings target.

Most mortgage providers will want to see evidence of strong finances before they agree to lend. So by reducing unnecessary spending prospective buyers could improve their chances of getting a mortgage.

Making savings go further

While a strict budget and controlled spending can help savers to gradually build their deposits, choosing the right savings account is a crucial part of making their money go further.

Easy access savings

Potential buyers should consider easy access savings accounts so they are able to make regular deposits when they can  Getting a competitive interest rate is also important, as it can enable prospective buyers to reach their saving targets sooner. Easy access accounts normally require a much lower opening amount that other types of savings accounts making them an ideal account to start with. Reviewing interest rates once a larger balance has been built up should be encouraged to secure the best interest rate on your money.    

ISA

Saving in an ISA is a way to benefit from tax-free interest and make more of your savings. As of April 2015, the ISA allowance now stands at £15,240, meaning that savers are entitled to more tax-free interest than ever before.

Help to Buy ISA

Before making a decision, it’s worth considering the Help to Buy ISA when planning how to save. Introduced in March during George Osborne’s annual budget announcement, the Help to Buy ISA is due to come into place in the autumn of 2015. This type of ISA will allow first-time buyers to benefit from a 25 per cent top up on savings up to £12,000. This means that for every £200 a saver puts into the account, they will receive £50 from the Government when they are ready to purchase a property.

However, savers need to be aware that since they can only open one ISA per year, they will have to choose between a regular  ISA and a Help to Buy ISA. Savers that have already deposited money in an  ISA since April 5th 2015 will have to wait until 2016 before opening a Help to Buy ISA.

After depositing an initial £1000 into the Help to Buy ISA, first-time buyers cannot save more than £200 each month into the account. This means that in order to save the full £12,000, and benefit from a £3000 top-up from the Government, buyers will need to save for approximately four years. 

Preparing for changing property prices

With house prices subject to fluctuations, potential buyers must be prepared for changes in the property market. Prices could rise meaning that some buyers may have to save more money before they make a purchase. However, if prices were to drop, savers may be able to buy a home sooner..

For home buyers looking to purchase a property, watching their savings gradually grow month by month can feel extremely rewarding. With plenty of research into the property market, and an awareness of the savings and mortgage options on offer, potential buyers could make their savings go further.

To learn more about boosting your savings when saving for a deposit, please don’t hesitate to get in touch with the team at Aldermore.   

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