If you want to buy your first property, but are worried that your deposit is insufficient, we can walk you through your alternatives and your next actions to get your foot on the property ladder.
It’s not uncommon to feel these concerns.. Don’t give up hope, however, because thousands of homeowners have been in the same scenario.
We’ll walk you through all you need to know to get your first foot on the property ladder, even if you don’t have as large a deposit as you’d want.
What exactly is a mortgage deposit?
A mortgage deposit is a lump sum amount of money that you pay upfront when you’re buying a house. It will usually need to be at least 5% of the value of the property you’re hoping to buy. What’s more, the bigger your deposit, the smaller the mortgage you’ll need to take out to pay for the rest of the property’s value.
Our borrowing calculator can give you an idea of how much you can borrow based on your deposit.
How to save up a deposit
This is typically the most difficult question to answer. However, with a few basic strategies and tools, you’ll have plenty of cash saved sooner than you think. Here are some simple steps to get you started:
Reduce your expenditures
If you’re determined to purchase your first house, do all you can to save as much money as possible for the deposit. It’s also worth mentioning that cutting back on unneeded expenditure has the extra benefit of demonstrating to lenders that you’re frugal with your money.
If you’re stuck for ideas, try some of the following:
- Open a savings account – A separate savings pot/account is a smart place to start if you want to be sure you’re saving money and not spending it
- Use price comparison websites – Price comparison websites may help you save hundreds of pounds on utility bills, insurance, and even your monthly food store
- Try installing a budgeting app, which handles the heavy work for you; all you need to do is input your incomings and outgoings
Make your money work for you.
Along with saving money, it’s critical to make sure you’re saving in the correct locations. Saving into a Lifetime ISA is an excellent method to supplement your funds when purchasing your first property. But how precisely do they function?
- You can contribute up to £4,000 every year until you reach the age of 50
- The government will match your savings up to a maximum of £1,000 each year
- You can save in lump sums; you are not required to save every month
However, there are some ground rules you should be aware of beforehand. To open a Lifetime ISA, for example, you must be over the age of 18 but under the age of 40. The funds can also only be utilised to purchase a first house or saved for later in life.
Increase your credit rating
When you apply for a mortgage, lenders will consider your credit history to determine whether or not to lend to you, how much you may borrow, and, in certain cases, how much interest to charge.
Improving your credit score will boost the likelihood of your mortgage application being approved. If you have a small deposit, your mortgage lender will have to offer you more money. However, they’d have to be quite positive that you’d be able to repay it. Keeping this in mind, you must ensure that you are perceived as financially reliable in order to be considered for a mortgage.
The first step is to examine your present credit reports. Experian, Equifax, and TransUnion are some of the major credit bureaus that store your credit report. It’s a good idea to thoroughly review more than one report, and if you find any errors, it’s critical to get them addressed.
If you have a relatively poor credit score, take actions to raise it. These include using your credit card properly, paying your payments on time, and being on the electoral roll.