How to save for a mortgage

How to save for a mortgage

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Saving for a mortgage

If you’re looking to get on the property ladder and buy your first home, you’ll need to save for a deposit to get the best mortgage deal possible. Don’t know where to start? Here’s our handy guide…

How big does my deposit need to be?

When it comes to getting a mortgage, the bigger your deposit, the better. But, typically, the minimum deposit you’ll need is 5% of the property’s value (although 95% mortgages tend to be limited in availability). Having a decent deposit means you should be able to access mortgage deals with more favourable rates of interest. 

How can I save for a mortgage deposit?

While saving for a deposit can seem daunting, there are lots of ways to do so:

1. Savings account - If you’re happy to lock your money away for a set period, then consider a fixed rate bond (or term account). The longer you’re willing to set your money aside, then generally the higher rate of interest you’ll get, but check out the terms and conditions for any minimum or maximum deposits.

And be aware that should the base rate of interest go up, meaning the interest rate on savings accounts also tends to go up, you won’t be able to move your funds to another account to take advantage of this.

If you’d rather not commit to setting money aside for a set period and you rely on your savings for emergencies, then opt for an instant access savings account instead. While the interest rates won’t be as good as a fixed term account, any minimum deposits are likely to be a lot lower (often just £1) and you can access your funds when you need to.

2. Current account - Most of us use our current accounts for day-to-day expenses, and there’s nothing to say you can’t use this as your main method of saving, especially as some banks pay interest on balances in a current account at a higher rate than some savings accounts.

3. Help to buy ISA -Available to first-time buyers only, for every £200 you deposit, the government will pay a £50 tax-free ‘bonus’ to go towards the property you want to buy.

You can deposit £1,200 during the first month, then up to £200 a month after that. The maximum bonus you can get from the government is £3,000, and the minimum you need to save to qualify for a bonus is £1,600 (generating a bonus of £400).

You’ll get the government bonus when you buy a property; if you decide not to buy one, then 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 30 November 2019 and you must claim your bonus by 1 December 2030.

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

There’s a range of government schemes that can help you buy your dream home and they’re certainly worth investigating if you’re eligible. Look out for:

  • Help to buy equity loan scheme Available to first-time buyers and existing home owners who are looking to purchase a new build costing £600,000 or less. You need a 5% deposit, but you can then borrow 20% of the property’s value (or 40% if you’re in London) for the first five years interest free. The scheme closes in 2021.
  • Right to buy/right to acquire - This gives qualifying tenants who rent from their council or local housing association the right to buy their home.
  • Shared ownership - Allows you to jointly own a property with a landlord, who is usually a council or housing association. You’ll only need a mortgage for your share and you’ll pay rent at a discounted rate on the share owned by the landlord.
  • Starter home scheme - This scheme has earmarked 200,000 new-build houses for first-time buyers, priced at 20% less than the market value. To qualify, you must be under 40 years old.

Save money by shopping around

Realising how much you need to save to get on the property ladder can be daunting, but you’ll be surprised how little things can add up and make a big difference. Setting out a weekly budget for food and fun is a good place to start, and anything you save over that can be stashed away.

If you’re looking for more substantial savings, then think about reviewing your contents insurance if you’re currently renting. You might also save money by reviewing your car insurance if it’s due for renewal. So, start saving and start comparing mortgages today.

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