Buying a home is a milestone in life and a process we hope to go as smoothly as possible. There are many exciting moments to come once securing a home, although there may be some hurdles that we face before making this big commitment.
Saving up the money for a deposit is definitely the most important but hardest part about getting on the property ladder and is one of the main reasons why so many people don’t try to begin the process. The good news is that there are many useful ways in which to prepare for this vital period, meaning that we all have a chance to buy the home of our dreams.
What is a house deposit?
When buying a property, you will usually need to put down a percentage of the total purchase, whilst your mortgage pays for the rest. The more money that you save for a deposit, means the less you need to borrow and repay with interest.
There isn’t a specific amount of which you are required to pay for a deposit, although the contractual standard is 10%. There are many mortgage arrangements, such as a ‘loan-to-value’ ratio (LTV), which allows you to borrow up to 95% of the purchase price of the property, with the remaining 5% made up of your deposit, therefore making the initial amount you pay a lot cheaper.
Although you are paying less upfront with a mortgage like this, you are still required to pay your deposit upon exchange of contracts, and so the money needs to be available for this along with any other fees that you will be facing, for example, stamp duty land tax and conveyancing fees.
Tips for your deposit
1. Cut the cost of your current rent
Moving in with family, friends, or even other professionals via a flat/house share website can help you save money on your current accommodation. Remember that it’s only for the time being and if you find somewhere closer to your workplace, you are also spending less on daily travel to and from work.
2. Family support
There are many ways in which family, and even friends, can lend a helping hand when you are planning to buy a home. The two available options of either an income boost or a deposit boost give those who may be struggling to save up on their own a much better opportunity to get on the property ladder.
Income boost: An income boost, also known as a Joint Borrower Sole Proprietor (JBSP) mortgage, allows you to borrow more by adding some or all of your family member's income to your mortgage. Everyone on the mortgage is equally liable, however, how the repayments are divided is completely up to you. The income booster can be removed from your mortgage once you are able to afford the loan on your income alone.
Deposit boost: A Deposit Boost is a re-mortgage taken out by a family member or friend on their own property which then releases money. These funds are then gifted to you, the buyer, and put towards your own house deposit.
Be sure to do your research and find the best mortgage broker who has a plan most suited to you.
3. Government grant or scheme
You could be eligible to receive help from the Government, who is giving support to first-time buyers with either a ‘help to Buy’ equity loan scheme or through a 'shared ownership' scheme.
Help to buy: Equity loan: This scheme was launched in April 2021 by the government and allows first-time buyers to lend up to 20% of the cost of a new-build home, meaning the cash deposit required will be less, just 5% of the total. The mortgage you’ll be paying will also be lower.
Shared ownership: This scheme offers you the chance to buy an initial share of a home worth between 10% and 75% of its market value. You will then be paying the rest of the fee in rent to the housing provider.
See all government schemes here: https://www.ownyourhome.gov.uk/all-schemes/
4. Think smart
The most important step in preparing for your house deposit is saving. You can use cost-effective ways of living by using vouchers, choosing special deals on food or entertainment, walking and cycling, buying second-hand, embracing DIY projects, and eliminating anything useless from your routine.
All of the hard work will be worth it when you are settled into YOUR new home…
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