Tips for Saving for a Mortgage Deposit

Tips for Saving for a Mortgage Deposit

Saving adequately for a mortgage deposit is vital to achieving your dream of homeownership. You have to start somewhere and the deposit is the first piece of that puzzle. 

Understanding Mortgage Savings and ISAs

Firstly, what is a mortgage deposit? 

The deposit, sometimes known as a down payment is the total amount of money that a property buyer puts forward to go towards purchasing a property. If you’re successful in saving, you’ll be rewarded with the home of your dreams!

Saving for a mortgage deposit generally entails having around 5-15% of the total property purchase amount saved. If you already know the general cost of the property you want to buy, you can easily work out what the mortgage deposit will be. For example, if you pay 20% of a £200,000 property – you need a £40,000 deposit. 

Setting a realistic time to have this amount saved can help. Look at your income and compare it to your outgoings. Ask yourself how much can you realistically save every week/month. Have the amount you need to save clear in your mind.

This will allow you to set a realistic timeline of when to achieve the deposit target.

Effective Saving Strategies: 

Creating a realistic yet strict budget is key when saving up for a mortgage deposit. Make note of everything you spend in a month, and list all of your income sources – the more detail the better. Remember to put aside some cash for once-off payments like birthday gifts or wedding attendance. This will allow you to identify where you are spending too much, so you can save more. 

Notice that the wifi bill is very high? Maybe it's time to shop around for a new provider. 

It’s also important to allocate for unexpected costs, like household repairs, in your budget. This is where having an emergency fund comes in handy. Saving up for a rainy day fund can prevent you from taking funds from your deposit savings if an unexpected cost pops up. 

When saving money, consider investing part of it. You’ll quickly discover the magic of compound interest, known as the 8th Wonder of the World. 

It’s the interest earned on the saved amount plus the interest you’ve already earned. Let’s look at an example;

If a savings account has £20,000 in it, and earns 3% interest compounded monthly. 

• In 5 years, you'd have £23,232 (£3,232 in interest). 
• And in 10 years, you'd have £26,988 (£6,988 in interest) without adding any more.

While the interest continues to compound it adds to the total amount, which then keeps earning interest. 

You can maximise your savings if you continue to add to your investment account. To take advantage of compound interest, start saving early as the longer your money has to compound, the better for your savings. 

Maximising ISA Savings:

An Individual Savings Account (ISA) is a powerful financial tool that can help you save for a mortgage deposit if you invest regularly. Unlike other savings accounts, it allows you to save tax-free on the interest you make. You can pay less tax on your savings by maximising your full ISA allowance every year. Make sure to reach this limit every year to see the benefit as unused allowances cannot be carried over. 

Types of ISA:

• Cash ISAs are exactly what it says on the tin, cash savings that offer a secure way to save – though cash does devalue over time due to inflation. 
• Stocks and shares ISAs, where you invest in different assets and have the potential to gain higher returns. 
• Innovative finance ISAs contain peer-to-peer loans. 

Planning for Long-term Financial Goals:

Saving for your mortgage can be part of a long-term financial planning goal. Once you’ve saved for your deposit, bought a property, and then paid off your mortgage, you now have a valuable asset. This asset can be a vital part of your retirement plan. Or the property could be rented out to pay for your children’s education needs. 

It's important to be able to prioritise saving for your mortgage deposit whilst still looking after your other financial objectives. For instance, in the short term, you might want to start putting more cash into your savings for your deposit, and less into your investment account. In the end, a property will be a part of a well-balanced financial portfolio, and your deposit is the first step in this goal. 

In conclusion, starting as early as possible, planning, saving regularly, and creating a detailed savings plan are crucial to saving for your deposit. Remember, ISAs and compound interest are both powerful tools at your disposal, so make sure to use them to maximise your savings.  

We recommend seeking professional financial help when saving for your mortgage. Our advisers here at The Openwork Partnership are here to help you take your first step to home ownership. Our dedicated advisers will guide you and help create a personalised mortgage savings plan just for you. 

An ISA is a medium to long-term investment, which aims to increase the value of the money you invest for growth, income, or both.

The value of your investments and any income from them can fall as well as rise. You may not get back the amount you invested.

HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen.

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE