One of the most important steps to consider when purchasing a home, is the deposit. This tends to be one of the most costly aspects of being able to buy a home and people are normally expected to be able to put down at least 10%. Despite this, you should try to put down as much as you possibly can, as this will enable you to have: cheaper monthly repayments, better mortgage deals, and less chance of falling into negative equity. Negative equity is where you owe more on your mortgage than your property is worth and this can make moving house or switching mortgage very hard.
Therefore, as having a deposit saved can seem like a hard task, I have compiled a list of the best ways to save for one – in order for you to reach your goal of owning a home:
One of the best ways to save for a deposit is to open an ISA account, as they are a type of savings account which does not require you to pay tax on the interest you accumulate, regardless of your yearly income. However, there is a £20,000 a year cap for the amount you are allowed to put into your ISA account. It is key to note that, if you don’t use up your ISA allowance – you cant carry it over into the new tax year, which is why you should try to put away as much as possible. Also, as a standard ISA requires you to request a withdrawal from the bank when taking out any money, it is also a good way to save as your money is slightly less accessible. However if you do need to access your money more easily and quickly, then it is also possible to pick an instant access cash ISA.
Find cheaper alternatives
Another effective way to save money, is to cut out any luxuries and swap expensive items or pleasures for cheaper alternatives. This includes swapping your gym membership to a cheaper contract or different club, or reigning in your clothes shopping habits and buying less each month. By incorporating these small changes into your monthly outgoings, you will be able to save more and save faster. Start by making a list of all the things you can cut out or swap for something cheaper, and then work out how much you can save each month and incorporate this frugal mindset to your daily life and routine.
First-time buyer Incentives
A great way to save money is to look for deals on new houses that need to be sold quickly. When estate agents need to sell the last few homes in a development phase, they tend to offer buyers incentives such as: free stamp duty, free furniture or a few months mortgage free. These incentives can eradicate many of the extremely expensive aspects of purchasing a home and therefore make saving for a deposit a lot easier. In order to be able to find these incentives, you should search for new builds and see what offers they have online or call the sales team, of the development, directly and ask them if they have any offers they can provide you with.
Bank of Mum and Dad
Parents can sometimes help with the cost of a deposit, whether that be through cash gifts, informal loans or formal agreements. The financial help of Mum and Dad can be a great way to get onto the property ladder and release some of the financial burden. Lloyds Bank has recently created a new mortgage called Lend a Hand, and it enables people to borrow the entire cost of their new homes. To be able to do this, a relative must have 10% of the cost of your home in cash, which they provide to the bank and is kept for three years to ensure you do not miss any payments. This is an exceptionally good way to purchase a new home, as it does not require you to save for a deposit at all and your relative gets their money back after the three years with interest on top. But you must make sure you keep up with your monthly payments so that your parents do not miss out on getting their money back.
It is important to keep these tips in mind and create a list of how you will implement these saving habits into your daily spending and monthly outgoings – remember to keep your eye on the prize!