Saving a deposit to buy a house
by Phil LongAnybody who read my two-part post ‘Too Much Month‘ (click the link to catch up) will know I finished the post with mention of the next step in terms of my financial needs - and that is the buying of a house. Well, this evening I’ve been reading up on advice for saving a deposit for when I eventually buy a house - so I thought I’d summarise some of what I’ve picked up on my surfing travels.
The first thing to work out is whether you need or want a deposit at all - or whether you’ll opt for a 100% mortgage - and that will depend upon your own personal circumstances. One thing that is clear, and has been much reported, is that due to the credit crunch the number of mortgage deals has been halved as lenders become more cautious about who they lend money to - in the face of not having as much to lend in the first place. What 100% mortgages remain are therefore very costly. As a result, general advice is if you can avoid a 100% mortgage, do - as they no longer represent good value.
In my case I already knew I wanted to save a deposit - so the things I’ve been looking at are when to buy, what proportion to save and where to save it. That first question is a biggy - and I don’t think anybody’s got a good answer to that at the moment so I’ll leave it for now, but the other two are a little easier to answer.
In terms of how much to save - the simply answer is “the more the better”. As with 100% mortgages, deals on low deposits have dried up a lot too - so it’s unlikely that a mortgage based on a 5% deposit would be as good value as one based on a 10% deposit. Before the credit crunch the difference wasn’t that great. I’m personally aiming to save a deposit of around 20% - and I’ll be looking for somewhere with at least two bedrooms. What I also need to consider is ensuring I can afford the payments while continuing to save and increase my mortgage contributions. As mentioned in ‘Too Much Month’ the main thing I’ve done to maximise my savings is moved somewhere sharing the rent with two other people - so I’m now spending £250 per month versus the £635 I was paying when living in Manchester on my own. It’s also closer to work - so my travel costs have gone down significantly too. I took a look at what I spend on essentials (including savings of £100 per month for an emergency fund) and realised that I basically live on a salary of just under £15,000 a year, gross. The bulk of everything else is going in to savings, with the remainder being things like comics, DVDs etc.
If you’re living in rented accommodation on your own then I’d recommend looking at sharing - it can reduce your rent as well as other outgoings - like council tax (given you only get a reduction to 66% for living on your own). Share with just one other person and that’s dropped to 50% - so you can save something there so long as you aren’t moving in to a property in a higher band. Another suggestion I’ve read is moving back in with your parents to reduce your outgoings; not an easy thing to do but it may well be worth while to allow you to reach your overall goal. Another thing I’ve done is move increases to pay to savings rather than spending - though given the rise of fuel and gas/electricity going on at the moment that’s probably less of an option than it once was.
Of course these steps are just as applicable to clearing debt as it is to saving for your house deposit.
Next up - where to save? In my case I’m currently using an ISA and HSBC’s Online Bonus Saver, plus the HSBC Flex Saver for my emergency fund. I opened the ISA last April but only filled it in December thanks to a combination of savings and the Christmas Bonus at work which all went in to the ISA. This year I’ve been more fortunate as a combination of savings (including cashing in on 6 days of untaken holiday, which I got the money for in January) plus a significant chunk of money from my family, I’ve managed to reach the £3,600 limit for this year as of my most recent pay-day. The rest of my money (barring £100 a month for the emergency fund) is now going in to the Online Bonus Saver - which has a variable interest rate of 5.25% AER. I can get instant access to that should I need it - but I’m thinking that I might be able to get a better rate elsewhere. Handily enough I wandered to the Financial Services Authority website - which maintains comparison tables for a variety of areas - including savings. I’m going to have a think about what I need from the savings account (immediate thinking is I need to be able to switch money to my ISA next April without penalty) and see whether there is something that better matches my requirements.
If, like me, you’re looking at saving money to buy a house then hopefully this has been of some use to you.
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This article contains really useful information. Now i see the reasons for refinancing quite clear. First of all it may take long to find the best mortgage type for you especially if your credit score is not too high. I think it is better to compare several mortgage types before choosing this or that loan option.