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Saving a deposit for your first home

If you’ve decided you’re ready to fly the nest and don’t want to live with the folks anymore, or you’re done with sharing a bathroom with 4 other strangers, it’s time you bought your own home.

Get in the know about how much you might need for a deposit and how you can go about saving, so you can spread your wings.

How much is too much?

You know you want to buy your first home, but how much will it cost? That all depends on the size and location of the place you’re looking to buy, which will vary on what you choose.

It’s best to save up as much money for a deposit as you can, but you’ll typically need at least 5% unless you’re buying a right to buy or shared ownership property, where 0% deal is possible.

This is where Loan To Value (LTV) comes in. LTV is the ratio between the value of the property and the loan amount you can get from a lender. The lower the percentage, the better offers are usually available, because the risk to the lender is lower. Here’s a guide:

  • Deposit of 5-10% (LTV of 90-95%) - there may be several lenders available, but rates will likely be higher than usual. Plus you may need more equity if you’ve had bad credit.
  • Deposit of 15% (LTV of 85%) – there’ll be lots of lenders offering great rates. This is usually the minimum requirement for a lot of specialist lenders.
  • Deposit of 25% (LTV of 75%) – you’ll get more attractive rates, even with a complex situation or past credit issues.
  • Deposit of 35% (LTV of 65%) - plenty of lenders will be offering rates that are far more attractive than higher LTVs.
  • Deposit of 50% (LTV of 50%) – you’ll have options aplenty, with some of the lowest interest rates on the market likely to be available.

How to save

Now you know how much it’s best to save, you just need to work on getting the savings into your bank account. It’s a long road from starting a savings account to getting your keys, so here are some of the best ways to do it.

Set goals on how much you want to save

Work out how much you can definitely save each month and stick to it like glue. The best way to do this is to set up a standing order, which is an amount you move each month from your current account to a savings account within your bank or building society.

This removes the temptation of using money for your home savings for non-essential items like a new outfit or a couple of takeaways.

Get a helping hand

Depending on your situation there are a number of options that could help you get on the ladder.

Help to Buy schemes lend a hand buying new-build homes. A minimum of 5% is needed for a deposit and they’ll lend you up to 20% of the rest. The first 5 years are interest-free but you’ll need a plan in place from the 6th year to repay the deposit you were lent.

Shared ownership gives you a chance to buy a share of a home with a local housing association, and pay rent on the rest. This reduces the size of the deposit and mortgage, but you’ll still have to pay rent and will only own a portion of the home.

Get your parents involved and they might be able to contribute or lend you some of the money for your deposit. They may even be happy to act as a guarantor, which means if you’re unable to pay your mortgage for any reason, they’ll pay it for you.  

For the record

Once you’ve got a big number in mind for how much you need for the deposit, you need to start looking at the everyday little numbers. Because those little ones add up quickly.

Hold yourself accountable for the first few months and write down every single thing you buy outside of your big bills.

You could keep a spreadsheet or start a savings Instagram account to snap and record every little coffee, meal deal or petrol receipt. Either way, you’ll start to see where you’re spending money unnecessarily.

Then start channeling the money you’re spending elsewhere into your savings account and watch it add up.

Dive into deals

Become obsessed with finding the best deals on stuff, whether it’s shopping for clothes on sale or avoiding impulse buys when doing the weekly shop.

Put all the extra money you have left over into your savings account and you’re one step closer to not having to queue for the bathroom in the morning. That’s way better than a £3.45 cappuccino.

In summary

When buying your first home, thorough research is the key to success. Knowing the home you want and the area you want to live in gives you a more accurate reading of how much you’ll need to save.

When you know how much you need to save, you’ll be able to use the research you’ve done to knuckle down and start saving.

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