Mortgage deposits represent a large part of the home buying process. Existing home owners looking to buy a new property may be able to fund their deposits through equity in their current home. First time buyers may need to save for a downpayment. How can a first time buyer save more and save it quickly?
How Much of a Deposit Will a First Time Buyer Need to Get a Mortgage?
This depends on the mortgage deal the buyer opts for and the value of the property. Typically, first time buyer deposit rates are lower than the norm but still run to around 10-15% of the property value. For a £100,000 loan at a 10% deposit rate, the individual would have to raise £10,000. At 15% they would need to raise £15,000.
This can be especially difficult for younger people who are trying to juggle their finances. There are, however, ways to speed up the savings process and to save more effectively.
How to Save More Cash for a First Time Buyer’s Deposit
Many first time buyers start to think about buying a home when they realise that they can actually afford a mortgage and get tired of wasting money on rental payments. But, many have not yet had the chance to build up significant savings and fall short of the sums they need for deposits.
Being focused about saving and saving hard can be a useful way to build up deposit funds. It may, for example, be worth:
- Taking a long hard look at current spending and setting up a budget to rein it in and to save more money on a more structured basis.
- Using tax free savings such as ISAs to maximise returns on savings.
Doing this may help to start building a deposit but the process may be slower than some would like. Looking at ways to speed up the process may also be useful.
How Can First Time Buyers Save for a Deposit More Quickly?
There are ways to speed up the savings process. Many younger people will, for example, choose to move back into the parental home. Even if they are asked to pay rent, most will find this a far cheaper solution than renting their own property. This could allow them to save more money, more quickly.
Some will also use house and flat shares in the same way. Renting a house with a few friends is a lot cheaper than paying for living alone. This may suit some first time buyers (and their parents!) better than moving back home.
Looking at buying a property with a partner or friend may also be worth considering. This effectively halves the deposit sum needed which could see the buyer raise a deposit much more quickly. This may need some thought and legal help to set out contractual commitments.
Really being focused on the deposit goal helps here too. Those that look to save more cash and then really go for it will find it easier and quicker to build the funds they need. Setting a timescale goal helps many at this stage.
Is Borrowing Money for a Deposit a Good Idea for First Time Buyers?
Some first time buyers want to move so quickly that they will consider borrowing money for their deposit. This should not be entered into lightly. Buying a property is a huge debt commitment and adding an additional loan to the mix could make it hard to manage financially.
Some will get help from their parents who may fund all or some of their deposit either as a gift or as an informal loan. In some cases a parent will help their child cover their deposit or get lower LTV percentages by standing as a guarantor for part/all of their mortgage. This, once again, may need careful thought and legal advice to make sure that it works for both parties.
It’s worth remembering that this may be a good time to be buying property for the first time in general cost terms. The recent budget changes to stamp duty rates for first time buyers purchasing properties up to £250,000 in the next two years could save them up to £2,500 so it may be worth starting to save in earnest sooner rather than later.