Saving up for a mortgage
Many of us dream of owning our own home one day – that perfect nest to suit you and your favourite people. But years of increases in house prices mean that it can be a real challenge to get your foot on the first rung of that property ladder.
If you want to find out how to go about saving for a house, read on.
Where to start
Well, the first thing you’ll need to do is to get yourself a mortgage. And that means you need a deposit – a sum of at least 10 per cent of what a house is likely to cost you. These days, the average house price in the UK is £191,800 which would mean you’d need to save up around £19,180.
Work it out
Start by looking at some houses or flats in the area you’re looking to buy, and work out what 10 per cent of the price is.
Then calculate how much you can afford to put away each month to start saving for a deposit, and how long it will take you to get to that magical figure. You might decide to tighten your belt a bit to help you save.
If it still looks like it will be several decades till you’ll be putting that new door key on your fob, there are some other things to consider.
Help to Buy ISAs
Help to Buy ISAs are special savings accounts to help people save for their first home. They’re available to prospective first-time buyers over the age of 16. With these, the government will give you a £50 bonus for every £200 you save in the account, up to savings of £12,000. This means savers could benefit from a maximum bonus of £3,000.
The bonus is available on homes worth up to £250,000 or £450,000 in London, and is paid when you buy the property.
Accounts are per person, not per property, so if you’re in a couple you can both receive the bonus. You can make an initial deposit of up to £1,200 when you open the account and then pay in up to £200 a month afterwards.
Also, as with other ISAs, the interest that you earn is tax free. But you can only pay up to a certain limit per year in to an ISA, and you can usually only pay into one each tax year (you can have more than one just not pay in). If you had an existing cash ISA that you had already paid into you could transfer this into a Help to Buy ISA and carry on with your savings. Make sure you read any details carefully when signing up.
Do we need to put the minimum in?
The minimum government bonus is £400, meaning that you need to have saved at least £1,600 into your Help to Buy ISA before you can claim your bonus. If you do save this amount then when you buy your first home, your solicitor or conveyancer will apply to the government for your bonus. Once you receive the government bonus, it will be added to the money you are putting towards your first home.
Other Help to Buy schemes
If you want to get into a home as soon as possible, you could look at two other schemes available in the UK. These are ‘Equity Loan’ and ‘Mortgage Guarantee’ schemes.
Equity Loans are available on new build housing worth up to £600,000 in England, £300,000 in Wales and £230,000 in Scotland. You need a deposit of five per cent of the value, and then the government will lend you up to 20 per cent of the value with a loan that can be repaid while you live in the home, or when you sell it. That means you will only need to get a mortgage for 75 per cent of the property’s value.
Mortgage Guarantee is available on new build homes worth up to £600,000. Again you need a five per cent deposit, and a mortgage for the remaining 95%. The way this works is by encouraging lenders to offer a higher mortgage than they might usually, through the government offering a guarantee of up to 15 per cent of the house value.
You don’t have to be a first time buyer to take advantage of these types of Help to Buy. But there are various terms and conditions to them, so make sure you read all the details carefully before you make any commitment.
If Help to Buy isn’t an option for you, or you like to keep things simple, you can use a regular savings account to collect that all important deposit. These can pay attractive rates of interest and it’s easy to set up regular payments from your bank account, so it can be a good way to make sure you're putting money aside every month.
But many savings accounts have restrictions to watch out for. There may be limits on the number of withdrawals you can make each year; you might have to give notice before you can take any money out, and you might need to open a current account with a bank to get a special savings rate.
Ideas to save more each month
Look at your shopping habits. Can you choose a cheaper supermarket, or buy cheaper brands? Savvy shopping can make a big difference to your food bills.
Cut back on the non-essentials. Do you really need those new designer sunglasses? Could you ditch that expensive gym membership and take up jogging instead?
Other things to remember
Buying a house is a costly business. You don’t just need that deposit, once you’ve found a home there are other things that will cost you money. These include stamp duty, mortgage fees, insurance premiums, solicitors’ fees and removals fees. So check out these costs too and make sure you have enough cash behind you to cover the additional bits.
Oh, and once you’ve got that lovely home, remember you’ll need some furniture to put in it!