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Quick saving tips for first time buyers

06th January 2018

So you’ve decided to buy a house. Despite having one of the lowest home ownership rates in Europe, with 63% of people living in their own homes, the UK still places a great deal of importance on home ownership. As such, thousands of people in the UK look to buy their first home every year. In light of this, in this post we give some saving tips for first time buyers entering the world of home ownership.

Saving up a deposit of between 5% and 20% of a property’s value, along with the survey fees, conveyancing costs, furnishings and all the other less obvious costs of buying your first property, it can seem like a daunting task. If you’re laden with student loans and overdrafts, it can feel as though you’ll never have your own place. But it doesn’t have to be that way. In this guide, we’ll help you formulate a plan to clear your debts, prioritise your spending and seek out whatever loans and mortgages you need to help you on the way to getting your dream house.


Address your debts

The first step to take before committing to buying a house is to address your debts. As with any saving strategy, you should look to organise any debts as soon as possible. Don’t worry about student loans, but overdrafts, credit cards and other similar debts which have been building up should be dealt with as quickly as you can.

Be sure to stay on track: make concessions on luxuries where necessary and work at chipping away larger debts regularly. Even if you can only afford to put a small amount of money away each month, every little will help and you’ll be clear in what feels like no time.


Save, save, save

Once any outstanding debts have been cleared, it’s time to start saving. Use the same budgeting tactics you deployed to clear your debts and you can start putting money towards your house buying fund. However, there are still some steps you can take to maximise your savings.

One of the best routes to take in getting the most out of your savings for home ownership is to set up a standing order into a high-interest ISA. As well as having higher interest rates, using accounts that require you to tie your money up means that you won’t be able to dip into the cash for more trivial purchases like a new coat or a big night out. Once you get into the rhythm of saving, it won’t be long at all before you can start looking at Help to Buy schemes and mortgage options.


Consider Help to Buy schemes

Government-backed Help to Buy schemes can make a huge difference in the home buying process. One of the best ways to take steps towards home ownership is by opening a Lifetime ISA (LISA). These LISAs, introduced in April 2017, give you the option of investing up to £4,000 per year, with the government matching 25% of that. This means that if you allocate the maximum amount every year to LISA savings, the government will add a further £1,000. First time buyers are entitled to a maximum of £32,000 of tax free cash; although as it would take you 32 years to get to that stage, it’s not something to worry about.

One factor to note regarding LISAs is that you won’t be able to touch the money until 12 months after opening the account. So if you’ve already built up a solid amount of savings and you intend to buy a house within a year, a Help to Buy ISA might be more beneficial. You’re only able to invest £200 per month (£1,200 in your first month), but when you come to buy your house, the government will give you 25% of whatever you’ve saved, up to £3,000.

These are just top level overviews of the two main Help to Buy schemes backed by the government. Nevertheless, it’s always worth seeking professional financial advice when considering a Help to Buy ISA or LISA.


Shop around for mortgage schemes

Once you’ve saved up and grown your ISAs enough to put down a deposit, it’s time to start looking into mortgage options. As a general rule, the two dominant mortgage types are fixed rate and variable rate. Fixed rate mortgages are mortgage plans where the interest rate is fixed for a set number of years. Alternatively, variable rate mortgages come in various forms and have interest rates that can fluctuate.

When deciding which option will work best for you, it’s important to note the key pros and cons of the different mortgage types, as follows:

Fixed rate pros:

  • Your monthly budget will always stay the same.
  • If interest rates go up you’ll be protected.

Fixed rate cons:

  • Fixed rate mortgages often require higher monthly payments than variable rates.
  • If interests rates go down or you find a better mortgage option, you can’t leave until your contract is up.

Standard variable rate pros:

  • You’re free to overpay or leave whenever you like.
  • Usually cheaper than fixed rate mortgages

Standard variable rate cons:

  • The rate can change for the worse, making your monthly payments more expensive.

Although these are the simplified differences between the main types of mortgage, it is important to seek the advice of a mortgage broker to get the best mortgage option for you. When it comes to variable rate mortgages, not only is it important for you to maintain a buffer zone in your savings in case of interest rate increase, but also to shop around due to the variety of variable rate mortgages available.

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