Typically, a first buyer needs to put down a 20 percent deposit on their first property. Other mortgage lenders require lower deposits of around 10 or 15 percent. For most people trying to save up for a house deposit can be daunting. The average time it takes to hit that target for a couple is three to four years and 13.5 years for single individuals. With the high cost of living, it can be difficult to even think of putting money aside. But with these tips on saving for a mortgage deposit, you can save smarter so you can buy your home sooner.
Start with a Realistic Goal
To succeed in life, particularly when it comes to financial planning, goals make it easier to stick to your savings plan. First off, have a target amount in mind. This will vary depending on factors like the value of the property you wish to buy and what the lender can loan you.
Most lenders will finance between 80-95 percent of the value of your property, meaning you’ll require at least 5-20 percent as a deposit. Generally, the more deposit you have, the less you’ll need to borrow and the lower your monthly repayments.
Once you have the target amount, decide how much to save every month to reach your goal. Set mini-goals to help you achieve the main goal.
Understand How Much You Spend
Now, before you even think of saving, you need to know how much you are spending and where. Start by listing all your income and expenses so you can realistically save without compromising your lifestyle too much.
Create a budget or money diary to assist you in taking control of your spending habits. If you don’t hit your target of saving every month, reexamine your budget and make the necessary adjustments.
Change Your Spending Habits
Let your goal of buying a home be your guide to help you cut back on luxurious things. For example:
Stop buying lunch and start carrying something from home.
Forgo the takeaway latte. Buy an insulated coffee cup to take coffee from home.
Stop partying and limit your spending on dining out and recreation.
Rethink your holiday or opt to make local road trips instead.
Move-in back with your parents, share a house with friends or rent a cheaper place.
Maximize Your Savings
You stand a better chance of increasing your savings when you save in an account that offers better interest rates. Plus, many banks and building societies offer incentives for switching your account. Switching bank accounts is a simple process and takes around seven days.
What's more, when your savings reach a sizeable amount, you might consider transferring it to a fixed or term deposit to earn even more interest and reduce your temptation of spending it.
Prioritize Saving for a Mortgage Deposit
If buying a home is a top priority now, save for your house deposit the first thing when you get your pay. Transferring the money from the rest as soon as possible makes it harder to access.
Better yet, set an automatic transfer, so you don’t even have to think about it. This way, your journey toward saving for a mortgage deposit stands a better chance of reaching the goal. Plus, saving consistently makes you look good when it comes to applying for a home loan.
Clear Your Debts
Do you have a personal or asset loan that you’re still paying? Or do you have multiple credit cards? You will pay more interest on debts that you can earn on a savings account. So, your best option is to pay off any debts first, and as soon as possible. It’s the most effective way to reduce the amount of interest you pay over time.
If you don’t use your car for work or daily commute, think about selling it or downgrade to a cheaper one. You might want to consider consolidating your debt so you can work on clearing your debts. Additionally, it's wise to make regular payments as delays may affect your credit history. Even better, do away with your credit cards to reduce unnecessary spending.
Sub-Let a Room
If you’ve got a spare room and your tenancy allows it, consider getting a lodger to help you bring in extra cash, which will help you save toward your deposit. Just be sure your landlord agrees with such an arrangement.
Don’t forget to look for someone you trust to ensure your safety.
Is there somewhere else you could borrow money, for example, your parents or friends? Alternatively, the government may offer various schemes, such as equity loans and shared ownership, to help you get on the property ladder.
Good luck with your savings. Remember, it takes a step in the right direction to reach your targets.
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