If you’re struggling to reach your mortgage deposit target, these five simple tips will help speed up the process.
Whether you’re itching to fly the family nest or feel like your money would be better spent on mortgage payments than rent, finding the lump sum needed for a mortgage deposit can be challenging.
So, to help you along the way, we’ve put together five easy steps to get you closer to your goal - whatever your circumstances.
Pay less rent
One of the biggest obstacles first-time buyers face is juggling paying rent and trying to save for a deposit. The reality in the current housing market is, the cost of rent likely takes up a large chunk of your monthly income, and just using the small amount left over to save will take an unrealistically long time. So, what can you do?
Move back home
Yes, it’s difficult to lose your independence and be back under your parent’s roof, but if this is an option for you it could be the quickest route to home ownership. Be sure to discuss house rules in advance and agree the rent amount before taking the plunge to avoid any friction, though.
Take in a lodger
You could generate a little extra income from your current home by subletting a spare bedroom (landlord permitting, of course).
If the idea of sharing with someone you don’t know is putting you off, you could try putting your feelers out amongst friends and colleagues. Any extra income you generate this way can go straight into your savings and shouldn’t require too much of a lifestyle upheaval.
Perhaps your parents live too far away, and you don’t have a spare bedroom, but you’re living in a spacious flat in a popular location. If this is the case for you, you could consider moving to a smaller place somewhere less pricey, or even just renting a room short-term.
This’ll give you the best of both worlds: you’ll keep your independence but still be able to save a little extra each month.
Make your money work for you
Since we’re talking about a substantial sum of money, having your money in a bank account with the best possible interest rates could really pay dividends. If you haven’t already, do your research and consider what type of account meets your needs.
An instant access savings account could pay you up to 1.5% in interest whereas an ISA could be anywhere up to 2.3%. These rates change in line with inflation and can go up and down regularly though, so keeping your eye on the ball could be key to making the most of your cash.
If you’re in the process of paying off outstanding debts before applying for a mortgage, then make sure you’re not paying more than you need to be in interest rates.
To answer this, spend some time working out how much interest you’re currently paying on any outstanding debts and consider whether you’d save money if you moved it all into one place, and paid it off using either a debt consolidation loan or a money transfer card, for example.
Ask for help
The bank of mum and dad
If your parents are in a position to help you financially, then don’t be too proud to ask. In fact, one in four first time buyers and eight in 10 under the age of 30 are reported to have help from the bank of mum and dad in the current housing market.
Discuss how much you could borrow, and how much you could afford to pay back on top of your mortgage payments each month. But be careful not to stretch your finances too much, as this could lead to missed payments and possible tensions.
Help to buy schemes
If you’ve managed to save a bit towards your deposit already, then the government’s help to buy scheme could be worth looking into. Under the scheme, buyers are only required to save a 5% deposit with the government coughing up a further loan of up to 20%, and better still this is interest free for five years.
Bear in mind though, this scheme is restricted to the purchase of new build homes. It’s also worth remembering that if you haven’t repaid your loan by the time you come to sell your home, the government retains its 20% stake in your property, regardless of your house’s value.
There are mortgages available on the market that allow willing third parties (usually parents) to help you secure a deal. Through these, your parents could help without having to find a chunk of cash. Instead, guarantor mortgages involve your parents securing their own property (or another sizeable asset) against your mortgage, and for this reason they’re a big ask.
Consider shared ownership
Another more affordable option for those struggling to find money for a deposit is shared ownership and shared equity schemes. These involve buying part of a property and renting the rest, and could give you a foot on the property ladder without breaking the bank.
You’d still need to save money for a deposit under these schemes, however, it could be anywhere from 25-75% less (depending on your share of the ownership).
It might sound obvious but if you take a little time working out exactly how much you’re spending and on what each month, it’ll become easier to work out where you can save.
This isn’t just limited to cutting out that take away coffee every day either – it extends to regular outgoings, too, such as bills. People are often surprised at how much they can save by ringing up their utility providers and negotiating a new deal, and this goes for phone bills, broadband and various insurance providers. By doing this regularly you can save extra money towards your mortgage deposit without drastically changing your current lifestyle.
Disclaimer: All information and links are correct at the time of publishing.