Saving for anything these days can prove difficult, never mind a mortgage deposit!
As a mortgage broker in Manchester, we often see that first time buyers find the homebuying process daunting, which is understandable as you will need to make sure that your credit score is good enough, you have a big enough deposit for your mortgage, have sufficient evidence to support your affordability.
Within this article, we are going to take a look at saving for your mortgage deposit and what you need to consider before taking out a mortgage.
Before you can start saving for a mortgage deposit, you need to work out your monthly disposable income. Start with working out your average monthly outgoings and expenditures so that you can calculate and estimate how much you can allocate to your deposit savings. This will give you a realistic view of how much you need to save each month.
Usually, the minimum deposit amount that you will need to put down is 5% of the property’s value. We have seen that some first time buyers in Manchester try to save even more for their mortgage deposit, sometimes up to 20%. The larger the deposit that you put down is, the lower your monthly mortgage payments will be. If you have bad credit, you may need to provide around 15%-20%.
As mentioned before, if you manage to save a bigger deposit, you could end up paying lower monthly mortgage payments. Essentially, this is because you have a lower loan to value (LTV) mortgage. Lenders are always thinking about risk, remember that a mortgage is borrowed money, the more that you borrow, the more interest you must pay back. If you also demonstrate that can save for your deposit you are also appearing as a more reliable applicant.
You will also need to account for the other costs of taking out a mortgage, such as arrangement, solicitor and property survey fees. If you use a mortgage broker in Manchester, you may also want to consider the costs that come with this too.
There is a wide variety of government-led schemes available that can help boost your mortgage deposit or help you save for one. It may be worth checking to see whether you are eligible for any of these schemes.
One of the more popular schemes is the Shared Ownership scheme where you are able to take a mortgage out on a percentage of a property, hence reducing your initial deposit. You can take out a mortgage on 10%-75% of the with the help of this scheme and it could help you in starting your first time buyer mortgage journey in Manchester.
There are many more schemes available, such as the Lifetime ISA, first homes scheme and the mortgage guaranteed scheme. If you are interested in any of these schemes or want to learn more, don’t hesitate to contact us or book a free mortgage appointment online with one of our mortgage advisors in Manchester. You can also find out more through the government OwnYourHome website.
If you are lucky enough to receive one, gifted deposits can significantly boost your mortgage deposit.
A gifted deposit is a contribution towards your mortgage gifted to you by a family member or friend. Strictly, this is not a loan it is a gift and must not be repaid in the future.
You should conduct an audit of your current bills and subscriptions that you out every month and see whether is anywhere that you can save money. You also may be able to find cheaper alternatives by looking elsewhere.
We would take a look at memberships too to see whether there are cheaper alternatives anywhere else. The more money that you manage to save each month, is more towards your mortgage deposit.
Buying with a friend or partner is often the way that we see most first time buyers in Manchester go. It is a popular option because your savings double.
You will have to be careful when it comes to creating financial links with other people because if they have bad credit, it could affect you too. If the person has a default, for example, it could negatively affect their ability to get a mortgage.
There are different types of mortgages designed for those looking to buy a property with their friend or partner, these include:
This type of mortgage involves both parties owning the whole mortgage and having equal ownership over the property. If one party passes away during the mortgage term, the full ownership of the home will be carried over to the remaining owner.
Lenders will consider you as one unit, so you will both have to come to an agreement if you want to sell or remortgage the property.
This type of mortgage involves multiple owners who have particular shares in the property. The shares in the property that are owned do not need to be equal too.
In the future, since the lender sees you as two separate shareholders in the property, you may be able to sell or give away these shares.
If you have bad credit, you may need to save more for your deposit. Lenders will often ask for a 10%-15% deposit if you have bad credit, therefore, you may need to spend longer saving up, unfortunately.
You could also try and improve your credit score. Look at some of these tips to see how you can improve your credit score.
Make sure that you are registered on the voter’s roll so that your lender can see that all of your addresses line up. It will also show your lender that you are reliable.
Double-check that everything is spelt correctly and that this is the same address that you use for your banking, store cards, billing addresses etc.
Maxing out your credit card and failing to pay it off each month can reflect badly on your credit score. It can be best to use a credit card and pay off the balance in full each month.
Leading on from credit cards, make sure that you are meeting your deadlines and have enough in your account when payments are due to go out. The more consistent that you are with this, the better the impact these practices will have on your credit rating.
If you have a credit account that you do not use and do not intend to use, you should close them down. They may be doing more harm than good to your credit file.
If an old address is linked to one of these accounts, it can cause a negative impact on your credit score. This applies to store accounts too, make sure that they are closed down if you are not using them.
Being financially connected to someone with bad credit can negatively impact your credit score. Usually, we see that this is more common following a divorce/separation where the ex-couple are still connected and they are both negatively affecting each other.
If you are planning on saving for a mortgage, and you need mortgage advice in Manchester, feel free to reach out to our team at Manchestermoneyman.
We know that starting your mortgage journey can be difficult and it all gets a bit too much sometimes – that’s why we want to offer a helping hand. We have over 20 years of experience in the industry and would love to help you begin your process.
Book online or give us a call to arrange your free mortgage consultation with a mortgage advisor in Manchester.
Last edited 06/02/2023