Buying a home is one of the most important – and nerve-racking – financial decisions a person will make in their lifetime. It is easy to feel intimidated, especially if you are buying your first home. Establishing a place for yourself on the property ladder may even seem out of reach for many, but with careful saving and plenty of research, your new home might cost you less than you think. Below are our top five tips for saving money when buying a home.
Consider your Mortgage carefully
It may sound obvious, but taking the time to shop around for a mortgage can bring you huge long-term savings. The interest rate you are eligible for will depend on the size of your deposit and financial history, so getting your finances organised as early as possible is key. Paying down a larger deposit means you are eligible for lower rates, so although it is initially a more sizeable investment, the money saved over the years as you repay the mortgage will be significant.
The minimum deposit amount you can make is 5% of the property’s value, but contributing a 10% deposit will broaden your choices, whilst depositing 25% will let you access the most competitive rates. For this reason, it could be worthwhile spending more time saving, and hold off buying until you can gather a larger deposit. However, in some cases, making mortgage payments is actually cheaper than paying rent, so whether to buy a home sooner or later will depend on your individual circumstances.
Save for your Deposit
Since larger deposits add up to lower mortgage rates, saving for your deposit is a vital for reducing the cost of buying a home. There is no single recipe for successful saving, but there are plenty of small steps you could take to maximise the amount of money you are able to put aside.
You might consider using a Regular Savings Account. A certain, pre-arranged amount must be paid into these accounts each month, usually over a year. With Regular Savings Accounts, your money is locked in for the duration of the year, and you cannot access it, but, because of this, these accounts tend to offer the highest interest returns. You might also consider an ISA (Individual Saving Account), which allows you to save money without paying tax on the interest you earn, up to a certain amount. Again, though, ISAs do not allow you full flexibility when it comes to making deposits and withdrawals.
You might be able to top up your savings with a number of small lifestyle changes, which can quickly accumulate. For example, if you tend to buy a weekly takeaway, this could be costing you around £900 every year – a significant amount, especially when it could be collecting interest! Packing your own lunch for work and foregoing a daily high-street coffee fix are other examples of small actions which can add up to a hefty deposit, and a better mortgage deal.
Look into Government Schemes which could help you
If you are buying your first home, there are also a number of government schemes which can be hugely helpful. The UK government’s ‘help to buy’ scheme assists those with sufficient income to keep up with mortgage payments, but not enough savings to manage a deposit. The ‘help to buy’ equity loan offers first-time buyers who have managed to save a 5% deposit, a loan worth 20% of the value of the property they are buying. This loan is interest-free for its first five years.
A ‘help to buy’ ISA could also be a great option if you are struggling to save enough to buy a home, by boosting the money you have available for a deposit. First-time buyers can earn 2.27% tax-free interest on their savings, to which the government will contribute 25% of the savings’ value up to a certain amount. Many banks offer this scheme, so it is definitely worth checking whether you are eligible.
Remember to take other Fees into Account
Buying a property is a complex process, and additional costs, besides the deposit and mortgage payments you also need to consider home reports from companies such as Your Property Wizard, should be taken into account. Most mortgages incur arrangement fees, which can be up to £2,000, you will have to pay Stamp Duty (a tax paid to the government when houses are bought), and solicitor’s fees must also be covered. On top of this, you may wish to pay for the property to be surveyed before you make your final decision to purchase it.
Factoring in all these expenses is key to ensuring that you have saved enough money. If you are met with unexpected expenses, you are more likely to be forced to dip into other savings, or even run into problems with debt, so it is vital that you take your time saving, and do your research to avoid unpleasant surprises.
Don’t Rush into Decisions
This might be the most effective way to save money when buying a house – not rushing ensures you have ample savings, and know your mortgage options, but it can also reduce the overall price you pay for the property.
Remember that it is the estate agent’s job to present a property to its best advantage, meaning any negative features are likely to be played down. Ensure that you ask plenty of questions, and try to underplay your interest. Doing some research online can also help you gain leverage when negotiating price. For example, the average property is on the market for 8.5 weeks, so if you discover that the property you are interested in has been on the market for 10 weeks or more, the seller might be more likely to accept an offer below the asking price.
Good luck using these tools to find your new home.