For many of us, our financial aspiration is to get on the housing ladder. But first, we have to face the hurdle of saving for a deposit. A deposit can cost tens of thousands of pounds which might leave you thinking, “where on Earth am I going to get that kind of money from?!”. But don’t worry, our partners at Home by OpenMoney are here to help you.
First, it might be useful to explain how the value of a deposit is thought up. Deposits are calculated on a percentage of a house’s value. The absolute minimum that you will have to save is 5%, but it always helps to save more than this. Increasing your deposit lowers the amount you need to borrow and so you will end up paying less interest back to your lender. This could help you pay your mortgage back more quickly and save you thousands of pounds in interest!
For example, the average house price in the UK is around £232,554. To buy a home for that value, you’d need to save at least £11,628 for the minimum 5% required by lenders. Putting down 10%, would require you to save £23,255, but you’d have access to more mortgage deals through different lenders and could negotiate a better interest rate on your mortgage repayments.
So, how can you begin to build your deposit? Well, there are a number of ways to maximise your savings, but firstly we recommend taking proper account of your finances. The first port of call is to work out a monthly budget if you haven’t already got one. What can you commit to saving each month? A term coined by Nationwide in their recent marketing campaigns and a very refreshing way to look at being paid is save day, not pay day. Nationwide discovered that people who are great savers, often save when they get paid as opposed to at the end of the month. With that money already in your savings, you will learn to budget with the remainder of your paycheck. Even people with lots of disposable income struggled to save when leaving it until the end of the month. You pay everybody else on pay day – landlords, energy providers, the bank – why not pay yourself too?
Secondly, look into opening a LISA. LISAs are government saving schemes where you can save up to £4k per annum and get a 25% bonus each year. That’s essentially free money to help you get on the housing ladder! So if you are to save the £4k limit, you will receive a £1k bonus. But it’s important to note that LISAs are only available to first time buyers and on homes up to £450k.
Lastly, think about your loved ones. Are there any family members who could help you out? Much less likely to charge interest than a regular loan, this might be a good option to help you build up the extra money you need. Helping you out might be an option for them.
While these are three worthwhile methods to consider, they are not the only options. There are a number of ways that you might help you save up for your deposit more efficiently. If you’re unsure on whether you have enough of a deposit, or need some advice on how to build your deposit, the advisers at Home by OpenMoney can help you put plans in place. Their advice will completely depend on what your goals are, and when you’d like to buy. So what are you waiting for? Visit your WorkLife platform to book a call with an adviser completely free of charge.