Saving For A Deposit
In our second blog in the series aimed at new parents and growing families, we take a look at ways to raise the necessary money to pay the deposit on a home of your own.
Many young couples and families are in a frustrating position where they can afford mortgage payments but can’t muster up the often tens of thousands of pounds needed for a deposit on their first home. They then get stuck paying high rents when they could be investing in a home of their own.
According to Statista, the average deposit for a first-time buyer in the South East is a whopping £64,910! But don’t let that scare you – generally, mortgage lenders ask for at least a 5% deposit, which on a home costing £300,000 is £15,000, however normally, a bigger deposit allows you a choice of better mortgage rates which could reduce you monthly payments and may be more helpful in the long run.
To bring down the cost of your home, it’s worth investigating the First Homes Scheme, which offers a discount to first-time buyers on some new-build properties.
You should also be aware that the deposit is not the only cost incurred when buying a property. There are solicitors and legal fees, survey fees and so on to pay out as well. Find out more about the true cost of buying a home at https://www.jfinance.co.uk/the-true-cost-of-buying-a-home/
So how can you raise that all-important cash for a deposit which will allow you to finally get a key to a front door of your own?
Save On Rent
One of the key ways is to start saving as soon as you can. If you still live at home with your parents, this is the ideal time to save, when you are not paying out for private rents. Even if you pay your parents ‘rent’ it is unlikely to be as much as you would be paying for renting your own flat! Or even consider moving back in with them – not everyone wants to live with their in-laws with a young family, but it works for some people.
Alternatively, think about sharing a house or flat to cut down on your accommodation costs. You could also consider moving to a smaller property to cut your rent costs. This might seem easy if you have small children who can easily share a bedroom – but do consider how long you might be saving for and your quality of life. When you have a young family, you are generally at home more than when you’re a child-free couple, so it may not be a sacrifice you are willing to make.
Save In An ISA
You’ll also need to choose a suitable savings vehicle. Shop around for accounts offering the best interest, but if you are saving over a longer period (and with several thousand to save that’s quite likely) an ISA will probably be a good choice.
Cash ISAs are easy to access (should you need your money in a hurry) and have a cap of £20,000 a year (which runs from the start of the tax year on April 6, rather than January 1). The benefit of an ISA is that you don’t pay tax on your interest. You could invest in a stocks & shares ISA, which will pay higher interest, but be aware that you could see your investment go down as well as up.
You can also choose from fixed rate and variable ISAs. A fixed rate ISA will retain its interest rate whatever the Bank of England decides, but you often need to deposit a set sum to set one up, and it’s not as quick and easy to access your money.
Another kind of ISA to look at is a Lifetime ISA [LINK: https://www.jfinance.co.uk/what-is-a-lifetime-isa/], which the government will also contribute to. There are various requirements but if you are aged between 18 and 40, it is worth considering.
While you may not want your family to help by offering you cheap or rent-free accommodation, there is another option. Family Springboard Mortgages allow you to buy a house without a deposit. Instead, a family member pays a percentage of the price of the property (generally around 10%) as a security deposit.
As long as you pay your mortgage payments on time, after five years they will receive their original payment, plus interest.
Another way for family members to release funds for a deposit is to consider an Equity Release Scheme. This allows them to release equity from their home, without having to sell it.
If you can’t turn to family to help, the government might give you a helping hand. There’s a number of schemes aimed at helping first-time buyers to get that elusive deposit cash. The Help To Buy: Equity Loan scheme, for example, will lend you up to 20% of the value of a new-build home, meaning you will have to find a smaller cash deposit. (In recognition of high property prices in the Capital, in London, the loan will cover up to 40% of the property value).
Finally, another option is to buy a shared ownership property. With a shared ownership home, you buy part of the property and rent the rest from a housing association. This is a great idea if your household income is going to increase over the next few years – when the primary carer goes back to work, or when you get promoted or pass professional exams. You can increase the amount you own, rather than rent, as time goes on.
If you would like to discuss any of the above – mortgages, ISAs, equity release or any other financial matter, J Finance, which is a member of the Equity Release Council, will be happy to help.
Established in Berkshire in 2004, J Finance Ltd is one of the leading financial planning companies in the area. We serve clients across the South of England including Oxfordshire, Buckinghamshire and Hampshire. If you would like to discuss this subject or any other financial matter, please contact us on 01635 521 300 or email [email protected] without obligation.
YOUR MORTGAGE IS SECURED ON YOUR HOME. THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.
EQUITY RELEASE CAN AFFECT THE FUTURE INHERITANCE OF YOUR BENEFICIARIES, NOT TO MENTION YOUR OWN FINANCES. THEREFORE, IT IS IMPORTANT THAT BEST ADVICE IS SOUGHT DUE TO THE COMPLEXITY AND VARIATIONS BETWEEN ALL EQUITY RELEASE SCHEMES.
J Finance Ltd was founded in 2001 by Jonathan Bright and is a financial services company located in Newbury, Berkshire – though we serve the whole of the UK. We are a team of financial advisers and mortgage consultants who are focused on giving you, our clients, professional advice along with outstanding customer service. We do this by developing long term relationships and offering an excellent, personal service. We’ll take the time to discuss your current situation and your plans for the future, and we’ll use this information to help identify the best financial products for you.