It doesn’t matter whether you’re buying a £80,000 house or a £800,000 house, you need a deposit if you want to take out a mortgage on the property.
Varying massively depending upon the mortgage you’re considering, as an average you should look to put down a deposit of 20%, but this could very easily be 5% or 10% – or upwards of 40%.
Obviously everyone’s ability to get the deposit they need will vary just as much as the actual size of the deposit that’s required, but it can give most more than a few headaches as they try to get together the money they need.
And if you’re currently in the situation of starting to save for your deposit, the following five tips should give you a good understanding of just how you can get the money you need.
1. Have it gifted from your parents
Every year, parents can gift their children £3,000 without any repercussions in terms of Inheritance Tax. Although not a possibility for everyone, if your parents and your partner’s both have the finances to be able to gift you £3,000 each, you instantly have £6,000 to put towards your deposit.
2. Borrow it from a friend
It’s always recommended to get professional mortgage advice when you’re considering borrowing money for a house deposit, but it can be a great way to get the money you need.
The most important point to keep in mind when borrowing money from friends is that it shouldn’t simply be a verbal agreement. It might seem fine at the time, but it can often lead to problems in terms of both your friendship and legally later down the line.
Whilst you will have to hire a solicitor to draw a legal document up, it will be more beneficial in the long term – and many lenders will actually require it, wanting to see confirmation that the person lending you the deposit doesn’t want any controlling interest in the property.
3. Remortgage an existing property
If you have a house already, you could potentially remortgage it and raise the available equity in it to fund the deposit on your next house.
A popular process for those with several properties, particularly in the rental market, it is once again advisable to seek professional mortgage advice, as although it may seem like a fantastic idea initially, it could prove to be detrimental to your finances in general (for example, the monthly repayments on the remortgaged property could be too high to make the new house buy a good move financially).
4. Buy the house with friends
Traditionally, houses are bought by couples or individuals, but there’s absolutely no reason why you can’t buy a property with more people – four or five friends, for instance. Some mortgage lenders do have some stipulations when it comes to buying a house in this less traditional way, but you shouldn’t come across any major issues.
And when you’re buying a house with several friends, not only do you share the monthly mortgage repayments, but you share the deposit, too, meaning a 10% deposit between five friends is just 2% each.
5. Cut back on your spending
Strangely one of the last ways to often be considered, cutting back on your monthly outgoings could be the easiest way for you to save the money you need for your deposit.
It might take longer to get your deposit than some of the other ways mentioned, but aside from the fact it’s simpler and you don’t rely on any other parties, some people just don’t have the other options available to them.
When you’re cutting back on your spending to save for your deposit, it is generally advised that you plan well in advance, as this way you’ll see the least disruption possible
For example, let’s imagine you were looking to purchase a £100,000 house and need a 10% deposit. It works out to be just over £400 per month for two years.
For many people, it will definitely be a stretch, but by cutting out anything that isn’t a necessity, it can easily be achievable.
And just to show how little you might have to cut back, if you smoke 20 cigarettes a day and drink two bottles of wine a week with your partner, by cutting these out, across a two year period you’ll have saved over £6,500 (based on a £7 packet of cigarettes and a £7 bottle of wine) – that leaves around £33 a week that needs to be saved, which should easily be achievable through a change in your shopping habits and a couple of pounds saved from your salary.
When you’re buying a house, there are so many things to consider, yet most of them don’t have to be thought about in-depth until you’ve got the deposit together.
Potentially problematic in itself, raising the deposit can take a lot of time and cause you more headaches than you first imagined, but you’ve simply got to remember that at the end of it all, you’ll be the owner of you’re very own property – and in the current market, where people are struggling to buy houses and deciding to rent instead, it’s a very enviable position to be in.