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Deposit advice for first-time buyers

03rd October 2019

House deposit advice can be very useful for every first-time buyer. Getting onto the property ladder is certainly a daunting process and you’ll no doubt be seeking out a lot of guidance before acquiring your first mortgage. One of the largest hurdles any first-time buyer will have to clear is the mortgage deposit. We’ll be discussing what they are, how much it should be and the best ways for you to save.

 

What is a deposit?

If you’re taking out a home loan in the form of a mortgage to buy your first property, you’ll be required to put down a deposit. The deposit you put down on your home will purchase a portion of the property and you’ll receive a loan against the rest of the value. 

The higher the deposit you put down on the property, the smaller your loan. As such, a bigger deposit will lead to cheaper monthly mortgage repayments in the long run.

 

How much should it be?

There’s no straightforward answer to the question of how much your mortgage loan will be, but it may be wise to talk to a mortgage advisor initially to work out how much you can afford. Speaking to an independent mortgage advisor can help you to understand what a reasonable deposit would be for the property you wish to buy, as well as how much you can afford to spend on your monthly mortgage repayments.

Mortgage deposits usually range from between 10 and 20 percent of the cost of the property but it’s possible to acquire a mortgage with a deposit of as low as 5% and even lower in some cases. You can use a mortgage calculator to work out how large of a percentage the mortgage deposit on your home should be. You’ll be able to see how much your monthly mortgage repayments will be for the deposit you can afford. Using a calculator, you can then determine whether or not you need to put down a larger deposit to acquire an affordable mortgage.

 

How can you save it?

Saving up for a mortgage deposit can feel very daunting. When the time comes to save up a deposit for your first mortgage, it’s possible that it’s the first time that you’ve ever aimed to save up a considerable amount of money. If you’re unsure where to start when saving for your deposit, we’ve put together a few key areas for you to focus on. Our advisors will also be happy to outline the best available savings accounts and ISAs. 

 

Save early

It sounds obvious, but when you’re saving for something as large as a mortgage deposit, the earlier you start, the better. Step one is working out a target for your savings, this will make it a much easier process than saving up an indefinite amount.

Make savings wherever possible. That could be through moving into less expensive rented accommodation, to a cheaper area, or back in with your parents. If your tenancy agreement allows it, you could even look into renting a spare room out to a lodger to give an extra boost to your mortgage savings.

Overall, you just need to ensure that you’re budgeting wisely. Set a target and work towards it, but be sure to leave some leeway to factor in any unexpected costs. You don’t need to deprive yourself of too much, but a cheaper flat or skipping a summer holiday abroad can go a long way to helping you save. There are even plenty of apps you can download to your phone including Moneybox, Revolut and Monzo that all offer money-saving features.

 

Take out a loan from the bank of mum and dad

Of course, this isn’t an option for everyone, but if you have friends or family who would be willing to give you a loan, it would be a great opportunity to add to your deposit. The IMC team have taken an in-depth look at the benefits of the BoMaD before, but we’ll explain it here.

Almost two-thirds of first-time buyers seek financial assistance from friends or family members when looking to save for their deposit and, if it’s an option for you, it’s absolutely worth it. Ensure that everything is laid out clearly when you first discuss borrowing from your loved ones to avoid any hiccups further down the line.

Rather than simply borrowing from your parents, you could instead ask them to act as guarantors. A number of mortgages will allow a willing third party – whether your parents or otherwise – to help you get a cheaper mortgage without putting cash down. The guarantor will often use their home as security for your mortgage, meaning that the deposit could be lowered, allowing you to get on the ladder sooner.

 

Help to buy schemes

There are a variety of government-backed help to buy schemes available to first-time buyers that can help to lower the deposit amount that you’ll need to save. ISAs, LISAs and shared ownership can all help you to attain a much more achievable deposit amount.

Government-backed help to buy ISAs and LISAs can be really beneficial in helping you save. Both have their differences, but on a basic level, the government will top up whatever savings you make towards putting down a mortgage deposit. You can read more about the help to buy ISA on the UK Government’s website.

Shared ownership schemes are a great way for you to buy a home at a far more affordable level. With shared ownership, you purchase a portion of a property from a housing association at a much lower cost than the price of the entire property. You will then pay an affordable rent on the rest. As time goes on, you will be able to invest more cash into the property, allowing you to own it entirely. You can read more about shared ownership on our blog.

 

Work with a professional

If you’re struggling to save up a deposit for your mortgage, working with an independent mortgage advisor can help you to set realistic goals and get on the right track to saving. Whether you’re struggling to work out what kind of mortgage is realistic for you, or the best ways to cut back on your spending, speaking with an independent financial advisor can help put you on track to getting on the property ladder.

 

If you’re saving up for your first mortgage deposit, why not get in touch with the friendly IMC team today? Our professional independent financial advisors will work with you to help you buy the property of your dreams.

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"Our mortgage adviser Andrew Francis is brilliant. When we first met him we were first time buyers with very limited knowledge about the process of buying a first home in the UK. However, Andrew guided us through the process with his vast knowledge and professionalism. We had to recently re- mortgage our flat, Andrew got in touch with us well in advance he presented us with the best options for us and made the whole procedure painless. Of course, we were a lot more relaxed this time around, as we already knew that we are in good hands. Thank you for your help, Andrew!"

Vyara Panayotova , Feb 2020

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"Always been impressed We've used IMC for over 10 years and have always been impressed with the service. They have helped to guide us through various financial issues we've had and we've been able to make better choices as a result. I wouldn't hesitate to use them again"

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