How can I save for a deposit?
Posted on 11th October 2022 at 14:00
Saving for a deposit can often be the most challenging part of buying a property, especially in times like these during the post pandemic, cost of living crisis. According to statista.com, the average house price for first-time home buyers in the UK was over £264,000 in 2021, which was a slight increase from 2020.
How much deposit do I need to get a mortgage?
This depends on your individual circumstances. It’s important understand what you can reasonably afford based on your income and current financial commitments/ outgoings. Speaking to an experienced mortgage adviser is certainly worth considering at this point.
There are mortgages available which require a lower deposit of around 10 or 15%. There are also a some lenders who may offer a 95% mortgage (5% deposit). A whole of market mortgage broker/ mortgage adviser will be able to access a wide variety of products which may fit your individual requirements. It’s important to understand that a lower deposit is likely to cost you more in interest over the length of the mortgage.
What is LTV (Loan to Value)?
The loan to value is the percentage of borrowing you take out against your property. For example if you have a £150,000 mortgage on a £200,000 house, you have £50,000 equity, which means your LTV ratio is 75%. Your equity is 25% and your loan is 75% of the value of the property. If you have a £25,000 deposit to put down on a £200,000 mortgage, your LTV would be 87.5%. The higher your deposit, the lower your LTV will be. The lower your LTV, the higher your equity in the property. As house prices can rise and fall, it’s important to consider the fact that if the value of your home is lower than your outstanding mortgage, you will be in negative equity. This can have an impact further down the line when you want to sell the property or remortgage.
How can I save for a deposit?
Regular saving into a bank account can be more effective than working towards one off lump sums. Planning where you regular monthly payments will go is important, as is reviewing your savings on a frequent basis. If you are going to be saving for a long time, it’s worth researching the interest you may receive on your savings.
Can I open a Help to Buy Isa?
Help to Buy ISAs are no longer available to open. If you already have one, you can read more about them here
Can I open a Lifetime ISA?
You can use a Lifetime ISA (Individual Savings Account) to buy your first home or save for later life. You must be 18 or over but under 40 to open a Lifetime ISA. You can put in up to £4,000 each year, until you’re 50 and you must make your first payment into your ISA before you’re 40. The government will add a 25% bonus to your savings, up to a maximum of £1,000 per year.
Can my family help me with a gifted deposit?
Gifts from parents or a close family member are becoming increasingly common for first-time buyer deposits.
It is important to understand that the money isn’t a loan and gifted deposits are given with the understanding that the money does not need to be repaid. The person who is gifting the deposit will not appear on the mortgage or the house deeds. You will need a formal gifted deposit letter to send to the lender as part of your application.
What is a gifted deposit letter?
This is written proof that your deposit is a gift and not a loan. It formalises and certifies who and where the deposit is coming from and they will not have any stake in the property or will be expecting repayment for the deposit. Lenders usually have a template you will be able to use, as will your mortgage broker/ mortgage adviser.
Is there a limit on how much can be gifted as a deposit?
Different lenders do have varying criteria, however usually there is no limit on the size of a gifted deposit you can receive. It is important to note that the gift could be subject to inheritance tax if the donor dies within seven years.
Can I get a joint mortgage with a family member or a friend?
Purchasing a property with a partner, family member or a friend may be a possibility as the earnings of both parties will be taken into consideration by the lender. It would be advisable to speak to a mortgage broker and also seek legal advice as you need to fully understand the implications of being financially tied to someone else on a mortgage.
Will there be a credit check when applying for a mortgage?
Yes. A credit check/ credit report will form part of the mortgage application process. If you have a history of adverse credit, a bad credit score or a credit rating that is steadily improving, it’s worth speaking to an experienced mortgage adviser as they will be able to discuss options with lenders who have a more flexible criteria.
What is an agreement in principle?
An AIP (Agreement in Principle) allows you to find out if you are able to borrow the amount you need to purchase or remortgage. It isn’t a guarantee that your mortgage application will be successful either- so it’s important to bear this in mind.
Who should I speak to?
How do I find out more?
Call us on 01302 866787 and speak to one of our trusted advisers.
FCA Disclaimer
According to our research, the content contained in this article is accurate at the time of writing.
Infomation on this website is NOT bespoke advice to its audience and therefore does NOT constitute financial advice.
Readers are encouraged to contact our qualified advisers directly for mortgage and protection advice.
As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments.
Some types of buy to let mortgages are not regulated by the FCA. Think carefully before securing other debts against your home.
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