Saving for a house deposit. Where do you start? Two years ago I never thought I would be saying ‘let’s start saving for a house deposit’. I was £23,700 in debt and buying a house or starting to save was looking light years away. I thought it would originally takes years and years to pay my debt off. However, here we are!
The first thing to look at is what would you be able to borrow. This could be your combined affordability if you are a couple or just you as a solo buyer. This can depend on lots of factors but to be safe I have always used 4x my gross wage. Therefore, if you earn £25k a year your mortgage affordability could be £100k. Don’t forget though any debt you have is normally deducted from this.
Size of deposit
Now you know what your mortgage affordability might be, you now need to decide what size of deposit you need. The traditional deposit is 10% of the property value. However, some banks now offer a 5% deposit so you only have to save half of the amount you normally would. It really depends on your circumstances to which option is best for you. Everyone is going to be in a different situation! You might not have the time to save the 10% so 5% might be perfect for you if you can get a mortgage for it.
Also, there are government schemes that you can look into. The one I am currently looking at is the government backed help to buy equity loan. This is where you can put down a 5% deposit. The government will then give you a 5 year loan for 20% of the property value. This is interest free for 5 years before starting to incur interest. Also, this scheme can only be used on new builds homes.
Another option you can look at is shared ownership. This where you buy a percentage of the property. This can be between 25-100% ownership and is known as stair casing if you purchase more of the property over time. This is useful as you only need a deposit for the percentage of the property you are buying. However, please be aware that you have to pay rent on the other percentage. There are also associated costs each time you purchase more of the property.
Where to save?
Now you know how much you might be able to borrow and the deposit you will need, you can start saving towards it! The next question is where do you save this money? The likelihood is that it is going to be a large amount and you don’t want it sitting in your current accounts.
There is a government backed bonus scheme called a LISA. It is a savings account you can put up to £4,000 a year in. The government will then give you an extra 25% off the money you put in. However, once it is in there if you want to take it out, there is a 25% charge on the total amount of money in the account, including the government bonus. Therefore, make sure you do not need that money for a while if you are putting it in a LISA. Obviously there is no charge when you are purchasing a house with the LISA.
Personally for me, I don’t like having my money locked up like that with the current climate so I have it in a regular savings account. For example, I look at the highest interest saving accounts currently on the market. These are normally associated with a current account. E.g. if you have a first direct current account for the first year they will offer you a regular savings accounts with 5% interest. The interest is only for the first year and there is normally a limit of £200-£300 into the account each month. These aren’t ideal for everyone but it is something you can look into. Along with fixed term savings accounts but they are fixed, so there is a penalty if you withdraw before the agreed date.
This really depends whether you are just focusing on a deposit or the costs of purchasing a house as well. In terms of a deposit, you only need to decide how much you want to save. However, I will be doing a separate post on the other costs you might need to save for when buying a house.
If you are saving for a house deposit and would like to share any tips please comment below!