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It’s an ownership thing.
Saving for a House- A Guide for 2021
When you’re saving for a house, gathering together the funds for the deposit is the first big thing you’re going to want to do. The deposit is a lump sum that you pay toward the cost of the property and you need to have one to get a mortgage – sounds scary, we know.
December 2020 saw the yearly average house prices rise by 8.5% which is the highest percentage increase since October 2014. Now, the average UK house price is £252,000 – an increase of almost £100,000 in the last 10 years. We know that seems impossible, but with so many options available for house buying in 2021 you don’t need to fret.
It’s not a surprise, however, that the average age of a first-time buyer in the UK has risen to 31 years old.
It can seem an impossible task when it comes to saving for a house deposit, but the more you save, the less of a mortgage you need. So, it is worth getting your head around understanding what it all means. Don’t fret, there are plenty of ways to make saving for a deposit more manageable and break it down – and we’re here to help you do exactly that.
Shared Ownership is one of the great ways to reduce the amount of deposit you need and the amount of mortgage you pay – now, doesn’t that sound great. Don’t worry we will explain how in just a moment.
How much deposit do I need for a mortgage?
So, you’ve decided you want to save for a deposit – where do you start? The first thing you want to do is work out how much you’re actually going to need. This is where it can get scary but keep calm, it will get better the more you break it down.
What you need to save will depend on a number of factors such as how much you want to borrow, the price of the property and the percentage of deposit you need to pay. The deposit is a percentage of a property so, for example if you want to purchase a house that is £150,000, a deposit of £15,000 would be a 10% deposit.
A larger deposit means lesser monthly mortgage payments, which is why many people aim to put down more. Deposit percentages are generally moved up or down in multiples of 5. But ultimately, the more you can save for a deposit the better, in order to try and reduce your monthly mortgage costs.
Some things to remember are that the more expensive the property, the more you need as a deposit – so to keep your expectations realistic you can cap your property search at a specific amount (as much as we all wish we could afford that £1 million 7 bed mansion). You also need to keep in mind you may need to pay additional fees such as solicitor fees so keep a little extra back for these costs.
What deposit schemes are available?
Help to Buy
Luckily, there are some other options to help you out when it comes to saving for a deposit. There are a few different schemes available.
The current help to buy equity loan scheme means that the government will lend up to 20% of the cost of a new build home. In summary that means the cash deposit required is less – so just 5% of the total. The mortgage you pay will also be less. In London there is a different scheme to cover the higher house prices – in this London specific scheme the government lend up to 40% of the property price. This scheme is only available in England.
The government equity loan is interest free for five years – so it works out a better deal than going for a 100% mortgage. The current scheme ends in March 2021 but a new one begins and runs until 2023. It is for first time buyers only.
Now, we may be biased, but this is our favourite way to lower that pesky deposit as it’s based on the share price of the property as opposed to the full market value. Shared Ownership allows you to buy part of one of our properties. You take out a mortgage on a percentage share, or buy it outright, and then pay affordable rent to Aster on the rest. You can increase these shares over time – known as staircasing – and eventually in most instances staircase and buy 100% of your home. When buying more shares, the price will depend on property prices at the time.
Shared ownership really is a great choice for people looking to get on the property ladder without scraping together a small fortune.
Another thing to consider if you would like to reduce the cost of your property and reduce your deposit is the property type. When most people think of buying their first home they may automatically go to houses however sometimes flats or apartments may be more affordable or suitable for some people.
How much do I need for a Shared Ownership Deposit?
Shared Ownership is one way to get yourself on the property ladder without having to save for such a hefty deposit. Shared Ownership means you need a smaller deposit, lower mortgage amount and a little bit of rent – a good way of making the whole process less daunting.
At Aster you only need a 5% deposit based on the share of the property you buy. So, let’s say you are assessed at being able to buy a 25% share in a £300,000 property. This would mean the share would be £75,000, making a 5% deposit only £3,750. Even if you buy a larger share, your deposit would be based on the share price as opposed to the full property value, making it far more achievable to save up for!
How much are you able to realistically save?
Understanding your savings is one of the first steps to getting yourself on the property ladder. 85% of 25–34-year-olds are more likely to be saving for a home than any other age group so being realistic is important. Once you know what you need it is important to work out what you can realistically save. You don’t want to set an impossible goal and not reach it as this can be disheartening.
Take a look at your current finances and figure out what you could save – then work out how many months it would take to save your deposit. Remember it could be more/less some months, but an average should help. It is always best to work out the minimum – then it can only get better!
Saving for a Deposit Tips
If you’ve started to save for your deposit and feel like you aren’t getting anywhere or want to put more in, then you need to start assessing where you can cut back.
- Budget wisely - Considering your spending patterns can help with this. Setting some realistic goals can then help you limit your spending. For example, set a limit of no more than £50 on new clothes – then you can still spend a little but save more.
- Reduce Rent Payments - If you are renting currently, consider ways to reduce your payments. Some ways to do this are to get a roommate or move somewhere cheaper if this is possible. You could also look to move into a house share or move in with friends/family.
- Boost your Income - You also may have ways to boost your income. On the hunt for a new job? Why not step up the search and aim for that higher paying role. Or, if you have a side hobby that could earn you a little extra cash, take the plunge.
- Money Saving Apps – You’ll be able to find a great deal of money saving apps available now that can help you make better choices when it comes to saving and spending. This is a great way to see an overview of your financial circumstances.
- Tackle your Debt - Make sure to consider things such as debts when working out how much you can save – it is equally important to clear any money you owe when looking to get a mortgage so don’t put all your effort into your deposit if you have a few debts.
- Start Small - Set up a pot or account solely for deposit saving – setting up a direct debit to this each month (or whenever you get paid) means you are saving automatically – making it much more manageable.
- Start ‘paying’ Your Mortgage – A few months before you buy start living as if you are already paying your new mortgage. This way not only can you build up savings but also get used to paying a monthly mortgage.
Make sure your savings account pays a good interest rate too as this can help you out a lot.
Saving For a Deposit FAQ’s
Do you need a deposit for Shared Ownership?
Yes, you do need a deposit, but the total cost will be much less than if you are buying a house on the open market. You only need a 5-10% deposit on the percentage of the house you are buying through Shared Ownership.
Do you lose money on Shared Ownership?
No, the purpose of Shared Ownership is to help people get on the property ladder without breaking the bank. So, you can build up to purchasing the full property over time if you wish. We would add though, like with buying any property, values can go up or down, so depending on when you look to sell, the market value of your shared ownership property will be based on the property value at this time and may fluctuate from when you initially purchased your home.
Can you get help to buy deposit on Shared Ownership?
No, help to buy and Shared Ownership are separate entities but are both schemes that enable people to get on the property ladder.