When it comes to purchasing your first property the biggest stumbling block people face is the ability to actually save a substantial deposit. This can be incredibly difficult when you are also already paying rent. Here are a few things you can do to help both now and down the line, to help you save for a deposit as a first time buyer.
Watch your excess spending
Bad habits of a daily coffee stop at Starbucks are easy to form but hard to break. Same goes for that weekly takeaway, and the nights down the pub with friends. However an easy way to save smaller amounts of money towards the deposit on your first home is to start cutting back on your excess spending.
Instead of stopping for a fancy skinny latte each morning, get yourself a decent thermos mug and take your own. Turn that weekly takeaway into a monthly treat instead. And remember that nights down the pub will be all the more sweeter once you’ve got a property that you actually own to go home to at night.
They may only be small savings but as they say, it’s the pennies that make the pounds.
Cut back on bills
It makes good financial sense to routinely review your household bills and check you aren’t paying more than is necessary. A great way to do this is using price comparison sites. People can all too often be paying above the odds for their utility bills, purely because they’ve never switched to a better deal.
As well as common utilities, check in on your phone bills, internet costs, what TV and streaming packages you pay for… If your phone contract has finished and your phone is still working fine, don’t just upgrade because you can; look into a sim-only deal and you’ll be amazed by the difference in what you could pay. And ask yourself if you really do need to be paying for Netflix, Sky, Now TV and Disney Plus…when really you are still just watching the same old Friends reruns everyday.
This is also a great exercise in making your monthly out-goings lower, which is something a mortgage advisor or lender will be looking at too.
Give up renting (if you can)
This obviously isn’t an option for everyone but if you can give up renting and move back in with your parents (or other accommodating family or friends) you can potentially make massive savings on the cost of renting, particularly if you are in a private rent.
Mid-market rents can be a bit more cost effective than private renting, although there is some qualifying criteria you will need to meet, in terms of employment and earnings, so this isn’t an option for everyone.
Alternatively, you can review your current renting situation. If you are renting a place with more space or bedrooms than you currently need, perhaps consider downsizing to a smaller place with a smaller monthly rental cost. Moving to a different, more affordable area is another option too but just be careful not to get caught out with more expenses in commuting in this instance.
Use ISAs
Help-to-Buy ISA and Lifetime ISA are a great way to boost your deposit savings. Help-to-Buy ISAs closed to new applications in 2019 (however if you had opened one before this time, you can continue to save into it) and Lifetime ISAs are still available to new applicants. They both work by paying you a bonus on your total savings when it comes to withdrawing it for the purchase of a property.
There is of course various Terms and Conditions but if you are looking for a savings account with the sole intention of using whatever funds you save on the purchase of your first home, then it is a no-brainer to take advantage of the bonus a Help-to-Buy or Lifetime ISA can offer.
Cash gifts
It’s not uncommon now for first time buyers to receive help from their parents (or other immediate family members) when it comes to buying their first property. When this is the case the money must be considered a gift and not have any formal agreements to pay it back, with proof of it being a gift – usually in the form of a declaration – being given.
Not everyone will be fortunate enough to be in receipt of a cash gift but if you are, be sure to seek the advice of your Solicitor before accepting the money, so you can have the appropriate paper-trail in place.
Low Deposit Mortgages
As well as the First Home Fund, April 2021 is seeing the new Mortgage Guarantee come into play. The new Mortgage Guarantee will allow lenders to offer low deposit mortgages (5%) again; with the security that the government will cover the cost of the cover a chunk of the lender’s loss, should the borrower become unable to repay their mortgage.
This wouldn’t necessarily make it easier for you to save for a mortgage but it could make the end goal figures more obtainable and a little less daunting. For example, if you were saving for a property in the region of £200,000 and needed a 10% deposit £20,000 can seem like a massive amount to save. But with a 5% deposit £10,000 could in theory take half the time to save.
Our article on Are Things Looking Up for First Time Buyers? delves into the new Mortgage Guarantee in more detail.
If you are a First Time Buyer and in need of advice in the purchase of your first property, get in touch today on 0131 554 6244 or email: mail@bprsolicitors.co.uk.