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Saving money for a mortgage deposit in 2022
According to 'This is Money', the average first-time buyer in the UK shelled out a whopping £62,600 as a house deposit in 2021.
That's £23,000 more than pre-pandemic levels.
But don't panic just yet - if you're thinking about getting your foot on the housing ladder by 2022 then there are plenty of steps you can take to put yourself in a strong financial position.
In this article, we'll look at how to save for a house deposit in 2022, from working out your budget to savings accounts and ISAs.
House deposits explained
Typically speaking, most lenders require borrowers to put down a deposit when securing a mortgage for a property purchase.
There are exceptions to this rule, such as with guarantor mortgages, but in the main, a deposit is required.
The size of the deposit you'll need will vary depending on the lender and the property price.
However, as a rule of thumb, you'll usually need to put down at least 5% of the purchase price, and ideally, more than 15% to get the best deals. For example, if you're purchasing a £200,000 home and the lender requires a minimum deposit of 20%, then you'll need to raise £40,000 to complete the purchase.
How much is a house deposit?
So, how much will the average first-time buyer in 2022 need to save? This depends on a few factors:
The Loan to Value (LTV)
The Loan to Value (LTV) ratio represents the amount of equity you own in the house in comparison to the mortgage lender. For example, if you contribute a mortgage deposit of 15% of the value of the property, you will have 15% equity, with the mortgage provider loaning you the remaining 85%. This would equate to an 85% LTV.
The maximum LTV for first-time buyers is typically 5%, and there are various government schemes such as the Help to Buy scheme and the Lifetime ISA that can help to increase the size of your deposit.
Generally speaking, the more deposit you contribute, and the lower the LTV, the better mortgage rate you can achieve as a first-time buyer. So, if you contribute a 5% deposit, you can expect to be offered less favourable rates than someone who is putting down 15%.
Also, if your borrowing is larger, it follows that your monthly repayments will also be more expensive, and at a higher interest rate you will pay more interest in the long run.
House prices in your area
The house prices in your area will also be critical when thinking about getting on the property ladder.
If you're buying in London, for example, you will need to save much more than people buying in other, less expensive areas of the country.
There are government schemes to support you if you're buying in London - an experienced mortgage broker will be able to advise on the best scheme for you depending on your financial circumstances.
The average house prices in October 2021 according to the ONS were:
- North East: £147,719
- North West: £195,325
- Yorkshire and The Humber £193,675
- East Midlands: £228,290
- West Midlands: £226,279
- East: £332,216
- London: £516,285
- South East: £366,883
- South West: £298,600
On this basis, for a 15% deposit in each of these areas you'd need:
- North East: £22,158
- North West: £29,299
- Yorkshire and The Humber: £29,051
- East Midlands: £34,244
- West Midlands: £33,942
- East: £49,832
- London: £77,443
- South East: £55,032
- South West: £44,790
Other costs
With house deposits as high as they are, it can be easy to forget about the other costs involved in buying your own place.
Conveyancing fees
Solicitor/Conveyancing fees are another main expense when it comes to buying a home. These can range from £500-£1500 depending on the solicitor you use
Survey fees
You'll also need to consider and account for the cost of performing surveys of the property. These can vary in price depending on the type of survey you go for, between £400-£1500 in general.
Mortgage arrangement fees
Some lenders may also charge an arrangement fee for setting up the mortgage. This is typically a percentage of the mortgage amount and can be as much as £2000.
Moving fees
You'll also need to factor in the actual cost of moving to your new home. This could be as much as £1000s depending on the size of your move and how far you need to travel.
House insurance
Finally, you'll need to factor in any additional costs associated with the property such as council tax, utilities and house insurance - typically around £300-£500 a year.
How to save for your house deposit
Step 1 - Figure out how much you need to save
The first step is to work out how much money you'll need to have saved in order to buy your first home. Start looking at houses in your area to get an idea of the average property prices.
Then, using a mortgage calculator, work out how much you'll need to borrow and what the monthly repayments would be on this amount.
This will give you a good estimate of how much money you need to save each month in order to have a deposit ready in time for buying your home and getting on the property ladder.
Step 2 - Work out how long it will take to save this amount
The next step is to work out how long you'll need to save towards your deposit in order to buy the dream home you've had your eye on. You can factor in additional help from government schemes, and then work out a savings goal.
This is where you can start to look carefully at your current finances and get professional financial advice if needed.
There are a few different ways you can save money each month, and by working out how much money you should save towards your deposit on a monthly basis you can create an achievable savings goal and start to think about savings accounts.
Step 3 - Budgeting and savings accounts
As a first time buyer, setting up a Lifetime ISA makes sense as a savings account as you benefit from a 25% savings bonus from the government which can go towards a deposit for buying your first home.
When it comes to managing your money and budgeting, there are many innovative accounts that make it less of a chore.
Plum
Plum connects to your bank account and offers various options when it comes to saving to make the process fun. For example, you can set the app to save every time it rains, or take part in their 52-week saving challenge.
The app can automate savings every time you get paid, and also allows in-app investment options.
Monzo
Monzo's smart functionality makes it easy to both create a budget and set up an automated savings plan. Monzo's 'pots' make it easy to allocate funds for different purposes and automatically save to these pots based on your goals and preferences.
You can use automated 'round-ups' to boost your savings every time you spend and Monzo also offers an integrated savings account via Paragon.
Starling
Starling Bank is highly rated by its customers and makes it easy to organise your savings. In a similar way to Monzo, Starling lets you save in separate 'spaces' to make it easy to track your progress.
You can also set up regular payments into your account, or round up your transactions to boost your savings. Starling does not offer a separate savings account, but you can still earn interest on your balance.
Step 4 - Creating a budget
If you're on a tight budget, the first step is to work out where your money is going each month. Creating a monthly budget can really help with understanding how much you have to save for a property.
Begin by listing all of your income and expenditure - this could be as simple as writing down everyday expenses such as food, petrol and bills.
Try to be as accurate as possible, and then see where you can cut back on your spending.
It's not easy, but by making small savings each month you'll be able to accumulate a larger deposit fund in the long run.
Step 5 - Cutting down on luxuries
It's easier said than done, but one way to make your monthly expenditures leaner is to stop spending on luxuries such as takeaways and nights out, or favouring second-hand over buying new.
You'd be surprised by how much money you could save by just simply cutting these expenses out of your monthly budget.
Step 6 - Saving on bills
Another way to save money is by looking at your bills and seeing where you can make cutbacks. This could be anything from switching energy providers to getting cheaper car insurance policies.
It's easy to use comparison websites to find the best deals when you're on a budget, you'll be surprised how much extra money you can save by switching!
Step 7 - Consider investing in opportunities (and understand the risks)
There are plenty of ways to save money each month, but another option is to invest some of your savings into great opportunities such as ISAs or stocks and shares funds.
Investing is a risky business, and you should always consult a financial advisor if you're unsure, but this could be a great way to make your money work harder for you while savings account interest rates are low.
Step 8 - Reward your successes!
Saving for a deposit is no walk in the park, but every time you make an effort to save money each month your hard work will pay off.
Set yourself mini-goals and rewards along the way to keep yourself motivated.
By following these steps you'll start making some real progress towards saving up for your first home.
Getting help to save for your house deposit
Help to Buy Scheme
If you're a first-time buyer, the government's Help to Buy scheme could be a great option to help you save up for your property deposit. The scheme offers a 20% equity loan from the government (or 40% in London), which can be used towards buying a new-build property. Buyers contribute a 5% deposit, and are charged interest at a rate of 1.75% - increasing annually by inflation +1%.
Properties must be bought for less than £600,000, they must be new builds, and must not be let out.
Lifetime ISAs
Lifetime ISAs offer long term tax-free savings that are only accessible on certain life events/milestones, unlike cash ISAs. This includes when you buy your first home, when you reach a certain age, or when you are diagnosed with a terminal illness. With a Lifetime ISA, you can save up to £4,000 each tax year, topped up a £1,000 government bonus.
To open a Lifetime ISA, you must be over 18 but under 40 years old, and is designed to save for later life, or for helping you get on the housing ladder. The good news is that with a Lifetime ISA, they can also be used in conjunction with other government schemes, such as the Help to Buy equity loan scheme.
You can have either cash, or stocks and shares, or a combination of both with Lifetime ISAs.
What about guarantor mortgages?
A guarantor mortgage - sometimes referred to as a family and friend mortgage - is a way to purchase a home when you have no deposit available but have a 'guarantor' who helps to guarantee your mortgage repayments using their own property as security.
The guarantor must be a homeowner and agrees to take on the responsibility of the mortgage repayments if you're unable to make them yourself.
A guarantor mortgage can be a great option for those who don't have a deposit. The guarantor can be a parent or guardian, or another close relative.
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Choosing an Adviser
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Last updated 21 February 2024