First-time buyers – building up your savings
This is the third instalment of our mini-blog series called “Getting Mortgage Fit” where we explore different ways to whip your finances into shape before applying for a mortgage.
Here are the links to the full series of blogs:
Topic 1 – Knowing your credit score
Topic 2 – Getting clear on your monthly outgoings
Topic 3 – Building up your savings
Topic 4 – Working with a mortgage broker
This blog is all about building up your savings before applying for a mortgage.
Why is it important to build up savings before applying for a mortgage?
When I was getting on the property ladder in the 2000s, it was common for mortgage lenders to offer 100% mortgages, meaning you didn’t need savings as a down-payment on your first property. This, combined with the popularity of interest-only mortgages at the time, led to a rise in homeowners trapped in negative equity.
After the 2007-8 financial crisis, 100% mortgages all but disappeared from the market after the Financial Conduct Authority introduced new affordability rules.
Almost 20 years later, while there are still some “no deposit” or 100% mortgages available to first time buyers, they are rare. Those that do exist are more likely to require a guarantor and have higher interest rates and fees.
Therefore, it’s likely that you’ll need a deposit for your first mortgage (5% is typically the minimum). 5% of the average property price for a first-time buyer is around £14,0001.
Savings are also helpful to cover the cost of moving. A recent Which report estimates this can cost in the region of £2,000.2
How do I build up savings for a mortgage?
If you have no savings in place already, then understandably it can feel daunting to know where to start. Here are a few suggestions:
- The easiest way to start is to set up a savings account. Even if you don’t have any money to put in it yet, it is psychologically, an important step. It helps to keep your savings separate from the money in your current account and allows you to earn interest on the money you put aside.
- Put a regular amount aside each month. Once you’re clear on your monthly outgoings, you can start to identify any surplus money you have each month to put aside. If there is no surplus, then it’s time to identify areas to cut back so you can generate surplus to save.
- Family loans or inheritance. Do you have family members who are able to help you get onto the property ladder by helping boost your deposit savings?
How can Downton Mortgages & Financial Services help first-time buyers?
Here’s what you can expect from us if you decide to use a mortgage broker to find your first mortgage:
- We’ll take care of researching a comprehensive range of mortgage lenders and will come back to you with a list of options which we’ll chat through together.
- Once we’ve decided on your mortgage lender, we’ll take care of the application for you right through to completion and liaise with them on your behalf.
- We’ll also give you advice on buildings insurance and any personal insurance you might need, taking care of the applications for those too.
- We’re on hand to answer any questions, however small, to make sure you’re confident and happy with the decisions you’re making.
If you want to find out a bit more about us, then take a look at our website and get in touch for a no obligation chat.
Other blogs in the “Get Mortgage Fit” series
Topic 1 – Knowing your credit score
Topic 2 – Getting clear on your monthly outgoings
Topic 4 – Working with a mortgage broker
Other blogs we’ve written on related topics
5 essential questions for first time buyers
Sources
Important Information
The information contained within was correct at the time of publication but is subject to change (January 2024).
Please note for all mortgage products, terms and conditions apply. This information is a summary only. You will receive full documentation upon application which sets out the terms, conditions and limitations of lending provided.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.