For first-time buyers saving for a house deposit is one of the most challenging aspects when it comes to buying a property.
But with the current cost-of-living crisis and rising interest rates – in addition to property prices being at an all-time high you may be wondering if it is even achievable in the first place.
Here at enact conveyancing, we’ve pulled together our top tips on things to consider when saving for a deposit including budgeting and government-backed schemes that could help you save towards buying your dream home.
How much money do I need to save?
How much money you need to save will depend on a few variables, including:
- Average property prices in the area you want to move to
- Once you know which area you’d like to buy a property in you should look at property portal websites such as Rightmove, Zoopla, and On the Market to name but a few, to see what properties have sold for recently/how much they are on the market for
- The size of your deposit
- At an absolute minimum, you’re likely to need to save a deposit that is 5% of the cost of the property. Other factors such as your affordability, whether you’re buying as an individual or as a couple will also affect your deposit.
- How much you earn
- Your wage will also impact how much a mortgage lender is willing to let you borrow. Typically, a mortgage lender will offer you 4.5 times the amount you earn annually, therefore if you’re a low earner you may need to save for a bigger deposit to be able to afford the property you want. However, if you’re buying a property with a partner or friends/family you should be able to borrow more and save up a bigger deposit.
If you’re unsure, speaking to a mortgage broker will help you understand what you’re likely to be able to afford and how much of a deposit you will need.
Other costs to factor in
Saving for a deposit isn’t the only cost to consider when it comes to buying a property, there are several other upfront costs you will need to factor into your overall savings goal. See below for a rough idea of what those costs may include.
| Fee | What is it? | Cost |
|---|---|---|
| Valuation fee | The mortgage lender will conduct a valuation to check the property is worth roughly what you’ve offered to pay for it. | £0-£1,500, depending on the terms of the deal and value of the property |
| Arrangement/product fee | The fee for taking out the mortgage. | £0-£2,000, depending on the deal |
| House survey fee | A professional survey of the property to check for structural defects. | £350-£1,300 depending on the value of the property and type of survey |
| Conveyancing fees | Pays a solicitor or conveyancer to handle the legalities of buying the property. |
£700-£1,500 |
| Search fees | Searches should identify issues that might negatively affect the property you’re buying (e.g., flooding). | £350 |
| Buildings insurance | This covers you if anything major goes wrong with the property. You’ll need to have it in place from the day you exchange. | £120 pa |
| Money transfer fees | You’ll have to cover money transfers between mortgage lenders, conveyancers, buyers, and sellers. | £35 |
| Land Registry fees | Charge for registering yourself as the property’s new owner. | £90-£140 |
| Removal fees | The cost of hiring a van or a removal company. This will vary depending on how much stuff you have and how far it needs to be transported. | £100-£1,200+ |
| Stamp duty | The tax you’ll pay for buying the property. If it’s your first home and it costs £625,000 or less, you’ll get a discount. | Depends on property price – see the latest residential stamp duty guide for more. |
*Table Source: Which
In addition to the above, you will also want to think about ongoing costs if you were to own the property. With the current gas and electricity price hike could you afford to move to a property that would cost more to heat? There are other utility costs to consider such as contents insurance, water, council tax as well as commuting costs to and from work if you’re going to be living in a new area.
Other ways to save towards a deposit
There are other ways you can help boost your deposit savings:
- Cut back on non-essentials
- Do you treat yourself to a coffee from a coffee shop every day, or buy lunch from the shop 2-3+ times a week? Ditching these spending habits and making your lunch / bringing in a coffee from home on the way to work could save you £100’s a year and make a real difference when saving for a property deposit
- Set yourself a monthly budget
- Going cold turkey on all frivolous spending could be difficult – therefore set yourself a monthly budget to allow yourself to buy things when you need them. Such as clothes or birthday presents – shop around at charity shops to help your money go further and make a difference to the environment
- Could you run a side hustle business?
- Are you a talented artist? Good at embroidery or knitting? The rise of handmade and custom items has grown enormously over the last decade. Therefore, could your hidden talents be an opportunity to set up shop on a site like Etsy or Not on The Highstreet which champions independent businesses that offer unique products? Just be aware that you may need to submit a self-assessment tax return and pay income tax on any extra money you have coming in.
Rising interest rates
According to Zoopla, interest from first-time buyers is up a huge 46% year on year as they drive the market from the bottom up.
They’ve now become the largest buyer group in the country with nearly 177,000 transactions so far this year. That’s one in three sales made to first-time buyers.
However, despite the current economic situation doing little to deter first-time buyers, rising interest rates are likely to impact their levels of activity.
Zoopla states that moving from a 2% mortgage rate to 4% will see the average first-time buyer require an extra £12,250 in income.
That means earning £48,000 compared to the previous £37,500.
In London, you’ll need an extra £34,500 on your income.
Although, this impact won’t be felt as much in lower-value markets, where first-time buyers may only need a few thousand more on their income to secure a mortgage.
Government schemes to help towards buying a property
To combat the rising interest rates first-time buyers could look at one of the government-backed schemes to help them onto the property ladder, these include:
Lifetime ISA (LISA)
While the other government schemes help towards the immediate purchase of a property, the LISA scheme is a long-term savings product intended to support younger people in saving for their first home, or for later life. Applicants can save up to £4,000 each year, while the government will contribute a further 25% of each new payment.
‘First Homes’ scheme
If you’re a first-time buyer – under the ‘first homes scheme’ you could buy a property for 30% – 50% less than the market value. Only available in England, the property can either be a new build from a developer or a home you buy from someone else who originally bought it as part of the scheme
95% Mortgage Guarantee
After COVID-19 many 5% deposit mortgages were pulled off the shelves as the housing market reacted to the pandemic. To help stimulate the market and support those with smaller deposits the government introduced the 95% mortgage guarantee scheme. Unlike other schemes, it is available to first-time buyers as well as existing owners looking to move
Help to Buy: Equity Loan
The government has launched several phases of Help To Buy – the current being its Equity Loan scheme. Exclusively open to first-time buyers it’s beginning to wind down as the deadline for which buyers can reserve homes and apply for the Help to Buy: Equity Loan is set to end at 6 pm on 31st October 2022. With the actual scheme ending on the 31st of March 2023.
Shared Ownership
You can buy a home through the shared ownership scheme if you cannot afford all the deposit and mortgage payments for a home that meets your needs. Under the scheme, you buy a share of the property (between 10% and 75% of the home’s full market value) and pay rent to a landlord on the rest. More details on the scheme can be found on the government’s website.
Help to Build
Help to Build is the most recent of all the government schemes – launched in June 2022 and is expected to run for four years and is available to people in England that want to custom-build or self-build their own home. Applicants will receive an equity loan based on the estimated costs to buy a plot of land and build the home. The equity loan amount can be between 5% to 20% (up to 40% in London) of the total estimated cost. More details on the scheme can be found on the government’s website.
Despite the rising economic costs first-time buyers are still determined to get onto the property ladder. As rental prices remain high – the opportunity to buy a property could save you money, although there are always maintenance costs and other things to consider when owning your own home.
If you’re looking for an experienced licensed conveyancing specialist that will handle your property move from start to finish, get a free instant conveyancing quote from enact today.
