A simples guide

How to save for a mortgage

Mortgages can be daunting and saving for a deposit can feel like an uphill battle as house prices rise. Add to this stamp duty, legal fees and it can seem like an impossible and confusing goal. But, it can be done. It’s about knowing what’s involved and having a plan to keep you focused. With our easy to follow guide that explains exactly what that terminology means, plus tips on how to save for a deposit, we’ll have you up that property ladder in no time.

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How much of a deposit will I need?

The absolute minimum you’ll need is 5% of the property’s cost, although this won’t give you access to the best range of deals available. More than half of first time buyers have a 10% deposit and the average is 17%. The more you can save, the more options you’ll have when it comes to choosing a mortgage.

The average house price in England and Wales currently stands at £190,275 – saving for just the minimum deposit means you’ll need to stash away more than £9,500. That’s a fair bit to put away on top of forking out for everyday living expenses such as rent, food and travel so you’ll need to plan and budget carefully to start saving.

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What about all the other fees?

You’ll also need to think about all the other costs involved in buying and owning your own home, such as:

Stamp Duty – is a government tax on property. How much you pay in Stamp Duty will depend on the cost of the house you want to buy. You won’t have to pay anything on properties under £125,000. But you’ll pay 2% of the property’s price on anything above £125,000 and up to £250,000. That rises to 5% on properties up to £925,000 and 10% on a property up to £1.5 million. If you’re planning on becoming lord of the manor and spending more than £1.5m on a house, then you’re looking at Stamp Duty of 12% (as of April 2016).

Valuation fee – some lenders will charge a valuation fee for assessing the property and deciding how much they’re willing to lend you. Not all lenders will charge you, so it’s worth checking what’s included in the deal. You might need between £150-£1,500 for this (as of April 2016).

Surveyor’s fee – it’s best to have a survey done on the property you want to buy as it’s vital in identifying any issues with the house. You can choose from basic surveys to a full structural survey. Expect to set aside between £250-£650 depending on the type of survey you opt for (as of April 2016).

Legal fees – you’ll need a solicitor or licensed conveyancer to carry out all the legal work, they’ll also carry out local searches which cost extra. You can expect to spend £500-£1,500 for legal fees and £250-£300 for local searches (as of April 2016).

Electronic transfer fee – this covers the cost of transferring the mortgage money from the lender to the solicitor. Expect to save £40-£50 for this (as of April 2016).

Removals – probably the bit you won’t mind paying out for is the cost of moving your stuff out of mum and dad’s or your rented property and into your very own home. Of course if you do it yourself with some friends, it probably won’t cost you anything at all. If you do use the professionals, you can expect to pay around £300-£600. At weekends and peak times, it could be more (as of April 2016).

So what’s the best way to save for a mortgage?

A lot will depend on your own circumstances. If you’re paying rent, you might feel you need access to your savings just in case. If you’re lucky enough to still live at home and be able to save a chunk of money each month without the need to access it, you might want to look at accounts where you lock your money away.

Help to Buy ISAs – these are only available to first time buyers. The difference between this and a standard ISA, is that for every £200 you put in, the government will pay you a £50 tax free ‘bonus’ to go towards the property you buy. You can only put in £200 a month but in the first month you are allowed to deposit a further £1,000.

You’ll get the government bonus when you buy a property, if you decide not to buy one you won’t get the extra money. The bonus part of a help to buy ISA is paid per person, so if you’re planning on buying a home with someone else and you’re both first time buyers, you’ll get double the money. You can open a Help to Buy ISA until December 2019.

The maximum bonus from the government is £3,000 and the minimum you have to have saved to be able to qualify for a bonus is £1,600 (generating a bonus of £400).

Savings accounts – there are various savings accounts on the market, so you’ll need to think about what suits your needs best. The accounts that have the highest interest rates are usually fixed rate savings accounts where you lock your money away for a set period of time – typically for a year or more. Why not find out more about fixed rate accounts and decide if it’s right for you?

If you don’t think you can put your money away for that length of time without access, then there are instant access savings accounts. The drawback is that the rates of interest won’t be as high, but you do have the freedom to get hold of your money if you need to. Find out more about instant access accounts and what they have to offer.

Current accounts – most of us will have a current account for our day-to-day needs. There is of course, nothing to stop you using this as your method of saving. If this is the only account you have, at least you’ll always know exactly what you’ve got coming in and going out and you won’t have to remember any other accounts you have. The biggest disadvantage is that it could be tempting to simply spend whatever you’ve saved on an impromptu holiday or cheering yourself up with a new wardrobe.

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Are there any schemes that can help me if I’m saving for a mortgage?

There are several government schemes aimed at helping you buy a property such as:

Help to Buy – available to home buyers with small deposits (5%). There are two types of scheme under Help to Buy which are Equity Loans (if you want to buy a new build under £600,000) or Mortgage Guarantees which might apply if you want to buy an old or new house.

Right to buy – available to tenants who rent their home from their council.

Shared ownership – you co own a property with a landlord who is usually a council or housing association.

Shared equity scheme – set to run until 2020, it’s open to first time buyers as well as people who already own their homes but are looking to move. It’s only applicable if you want to buy a new build home.

Starter home schemes – this is a new scheme that will see 200,000 new homes built which will be sold to eligible buyers with a minimum of 20% off the market value. You’ll need to be a first time buyer under 40 to qualify.

What else do I need to think about?

You’ll need to keep the pounds rolling in once you’ve bought a home. Other financial considerations include Council Tax, home contents and buildings insurance, maintenance and repairs. Plus, if it gets too lonely, you might think about getting a house mate of the four legged variety – in which case, you’ll probably need to look at some pet insurance.

The sooner you start saving, the sooner your home-owning dreams will come true. So why not leap over that first hurdle today and start thinking about how to save for a house deposit.Whether you want to compare savings accounts, mortgages or even get ahead and start thinking about how much home insurance might cost, we’re here to help you.

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