Making the best out of your deposit

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Making the best out of your deposit

Some years ago, banks were handing out mortgages to people who do not have savings and the loans were usually more than 100% of the value of the property. But when recession hit the market, the prices of houses dropped and this resulted in the lender’s owing banks amount more than what their houses were worth. This made banks become very careful about lending and they usually ensure you have a deposit up to at least 10% of the house you want.

If you want a mortgage, you have to save as much as you can as this reduces your interest rate. Mortgages are usually classified based on their loan-to-value (LTV) which refers to the percentage of the mortgage as a value if the property the individuals wants. If someone gas 20% deposit, they will need 80% LTV mortgage. Banks usually have bands where their rates are power and this is because the higher the equity you have, the lower the risk you will be to the bank if the value of your mortgage falls.

To get an idea of how much you need to save, you have to take the following steps.

Do some research

You have to visit the website if the properties you want to buy and find out how much the properties would coast you.

Do some calculations

Using a mortgage calculator, find out the rough estimate of how much someone earning your salary can borrow. You can also factor in your partner’ssalary if both of you plan to make the purchase together.

Do some re-evaluation

If after the calculations, you figure out you can only borrow less than you had expected, you might need to make some adjustments and go for a smaller and cheaper property. There are mortgage brokers around who can help you find the ideal property.

Check your credit score

You need to get your credit report and check your credit score as lenders would make reference to this while considering your application. You need to regularly check your report so you can decide if you are credit worthy or not before applying for mortgage.

Ensure you save up the deposit

Bear in mind that you need to have at least 10% deposit for any mortgage you want no matter the value of the property you want to purchase.

Make provisions for extra costs

Purchasing house comes with a lot of costs which you might not even expect. Ensure you factor in costs like stamp duty cost, survey cists and solicitor’s costs.

After being aware of how much you need to save before you can buy your dream home, you need to work out the best way to save up that amount.  Here are some tips that would be helpful.

Open an ISA

Open an ISA so you can get the most from your savings and savings account protects you from paying taxes. Check out for good ISA rates and open up one immediately.

Learn how to save

You should St a standing order from your current account into your ISA account, this enables a certain amount to be moved from your salary account to your ISA account every month immediately you get paid and with time, you would adjust to having that done every month.

Avoid the Stock market

You might get tempted to invest all your money in the stock market while hoping to make huge profits, however, you should bear in mind that the prices of stocks fluctuate regularly and can even go so low that you might end up losing some money when you finally decide to pull out. Stock markets are for long term investments, so avoid them.

Maximise your allowance

The bad side of ISA lies in the fact that you can only save maximum of £5,760 a year into one, so if you have saved this much into your ISA, your next move should be to start saving in a savings account. Savings accounts usually offer high interest rates, although they have their own restrictions too, such as limits in the amount you can withdraw and a minimum amount you can pay in every month.  Some if the savings accounts have interest rates (bonuses) that last for a short time before they finally drop which are used to attract clients, so beware.

Lastly, while trying to save, you need to set a realistic goal for yourself, monitor your incomings and outings, so you can figure out the areas you need to make adjustments.

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FCA disclaimer

Based on our research, the content contained in this article is accurate as of most recent time of writing. Lender criteria and policies change regularly so speak to one of our Independent Mortgage Brokers to confirm the most accurate up to date information. The information on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisers working for or with Independent Mortgage Brokers are fully qualified to provide mortgage advice and authorised and regulated by the Financial Conduct Authority. All our independent Mortgage Brokers will offer advice specific to you and your needs and circumstances. Some types of buy to let mortgages are not regulated by the FCA. Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.