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Before someone can take their first steps on the property ladder, they must first tackle the issue of a house deposit. A house deposit is a lump sum which is paid upfront when purchasing a property, and it is a percentage of the cost of the property. Express.co.uk spoke to property experts for savings tips, and to find out how much people should aim to save up for a house deposit.
How much deposit do you need to buy a house?
House deposits are usually between five and 20 percent of the cost of the property.
Pete Mugleston, Mortgage Advisor and MD at Online Mortgage Advisor, explained to Express.co.uk: “Saving for a house deposit can be quite daunting to those who are just starting to save.
“Your deposit will require you to provide at least five percent of the cost of the property.
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“When it comes to how much mortgage you can afford, this will depend on how much you earn per year and the condition of your credit report/score, i.e. if you have any bad credit issues, this might affect the amount you can borrow, although it is definitely still possible to get a mortgage.”
Although some people successfully secure a house with a five percent deposit, in the current economic circumstances it may be a good idea to try to save up a bigger deposit than this.
Richard Hayes, CEO of online mortgage broker Mojo Mortgages, said: “First-time buyers should aim to save around 10 to 15 percent of the house price for a deposit.
“The bigger your deposit, the lower your mortgage interest rate, and the smaller your monthly repayments.
“However, we know it’s really difficult to save that amount of money and it’s tougher for people who can’t even rely on the bank of mum and dad.
“It’s harder now than it has ever been before, as one of the immediate consequences of the Covid outbreak last spring was the withdrawal of the highest loan-to-value (LTV) mortgages, as lenders scrambled to reduce their risk exposure, therefore making it harder for first-time buyers to get on the property ladder with five to 10 percent deposits.
“Back then, nine out of 10 90 percent mortgages were taken off the market, and 95 percent mortgages all but disappeared.
“Now, as the banks start to relax a bit, the 90-percenters are coming back on the market but having a deposit of 15 percent as I mentioned before gives first-time buyers access to better mortgage rates, however, we do know it’s incredibly tough to get that amount of money together.”
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Tips for saving up a house deposit
Taking small steps, such as cutting down on weekly outgoings and saving little and often, may help people to reach their savings goals.
Mr Mugleston said: “The best way to start saving for a deposit would be to cut down on unnecessary spending.
“There are many budgeting apps that can assist with this, as they help to visualise where your money is going and highlight what expenses can be cut.
“Simple things like unsubscribing from services you don’t use on your TV, cancelling your gym membership if you haven’t used it for a long time, and looking around for cheaper utility providers, can help you save each month.”
Brian Murphy, Head of Lending at Mortgage Advice Bureau (MAB), said: “Although it might seem obvious, making steps to save little and often can contribute to a deposit.
“You do not have to save huge chunks of money. It can be as simple as buying one less take-out coffee a week or going for a less expensive option when at the supermarket.
“Some banks also provide the option of ‘round-ups’ meaning if, for example, you spend £2.83 on an item, the account will ‘round-up’ the transaction and put aside 17p in a separate pot.
“Slowly and steadily, the savings pot grows without you even thinking about it.”
People who are looking to buy their first home may benefit by talking to a mortgage or property advisor about their options.
Savings accounts such as Lifetime ISAs (LISA) can also help to build up a sizable deposit, as the Government adds a bonus onto LISA savings.
With a Lifetime ISA, savers can put in up to £4,000 per year until they are aged 50, and the Government will add a 25 percent bonus, capped at a maximum of £1,000 per year.
Cash can be withdrawn from a Lifetime ISA when someone buys their first home, are aged 60 or over or are terminally ill with less than 12 months to live.
But withdrawing money from Lifetime ISA for any other reason will incur a penalty charge.
The charge is currently 20 percent, but it goes back up to 25 percent on April 6, 2021.
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