Breaking into homeownership can be daunting, but there are many ways to save up for a deposit and get on the housing ladder. From starting to save early to exploring alternative mortgage options, discover five strategies for first-time buyers.
Thinking about buying your first home can be daunting, but there are many ways to save up for a deposit and get on the housing ladder. Here are five tips from leading mortgage experts.
First-time homebuyers face unique challenges, from understanding mortgage options to navigating the home inspection process.
According to a survey by the National Association of Realtors, nearly 70% of first-time buyers rely on online resources for information.
The median down payment for first-time buyers is around 7%, with many programs offering assistance for low-down-payment mortgages.
Additionally, some states offer tax credits or grants specifically for first-time homebuyers.
Start Saving as Soon as You Can
The average deposit paid for a first-time buyer is £34,500, according to UK Finance. The sooner you start saving, the better. A Lifetime ISA (individual savings account) offers 25% bonuses for those saving for a first home. For each £4,000 saved in any given tax year, the government will top it up with an extra £1,000.
A Lifetime ISA is a savings account designed to help first-time homebuyers and individuals save for retirement.
It was introduced in 2017 by the UK government as part of its Help to Buy scheme.
Contributions are eligible for a 25% bonus, up to £1,000 per year.
The maximum total balance is £4,000, and the account must be opened before age 40.
Withdrawals can be made at any time, but may incur penalties if used for non-qualifying purposes.
Digital mortgage broker Tembo has seen a rise in savers starting young. ‘If you maxed out your savings allowance from the age of 18 to 30, you could pick up £22,000 in free bonuses,’ says Tembo chief executive Richard Dana. Family members can contribute too, but beware that the money can only be withdrawn to fund a first-time home purchase up to the value of £450,000.
Look at Low-Deposit Mortgage Options
Those struggling to raise a deposit have now got a broad range of 95% loan-to-value (LTV) deals available. Yorkshire Building Society offers a £5,000 deposit mortgage which does what it says on the tin and could offer a mortgage equivalent to as much as 99% of the purchase price.
A mortgage is a loan used to purchase a home, typically with a fixed interest rate and repayment period.
There are several types of mortgages, including fixed-rate, adjustable-rate, government-backed (FHA and VA), jumbo loans for high-value properties, and reverse mortgages for seniors.
Additionally, some lenders offer specialized options like interest-only loans or hybrid ARMs.
Borrowers should consider factors such as credit score, income, debt-to-income ratio, and loan term when choosing a mortgage option that suits their needs.
Skipton‘s Track Record mortgage can offer as much as 100% lending for those that can demonstrate a track record of paying rent that exceeds the mortgage payment. However, small deposit mortgages typically offer higher rates, and may not be suitable for many self-employed homebuyers who may struggle to meet the strict eligibility criteria.
Explore Shared Ownership
Shared ownership has been available in England since the 1980s and enables a first-time buyer to own a ‘share’ in their home of between 25% and 75% of the value. There are similar schemes available in Scotland, Wales, and Northern Ireland. You need a small deposit and can take out a mortgage to buy your share and then pay rent to the landlord for the rest.
Over time you can increase the amount of the property you own and reduce rental payments. It’s known as ‘staircasing’ and the aim is to eventually own your home outright. Shared ownership specialists Snugg Homes advises registering your interest and regularly checking the eligibility criteria, regardless of age – the average buyer with them is now 48.
Consider an ‘Income Boost’ Mortgage
The ‘Bank of Mum and Dad’ might not be an option for some, but there are ways to get help from family members without borrowing any money at all. An ‘income boost’ mortgage (otherwise known as a Joint Borrower Sole Proprietor mortgage) allows a homebuyer to add up to three family members or friends to their mortgage to increase the amount they can borrow from a lender.
While the ‘boosters’ are on the mortgage, they are not owners of the home and therefore the buyer’s first-time buyer status is not affected. This option is increasingly popular amongst younger first-time buyers who are earlier in their careers and are earning less. It’s the primary option for families who want to support their children but might not have the cash available to gift as a deposit, or want to keep hold of cash savings for their retirement or a rainy day.
‘Professional’ Mortgages Are Available
Many lenders offer ‘professional’ mortgages which could enable a buyer working in a regulated or accredited profession – such as doctors, architects, and accountants – to borrow up to six times their income. Specialist lenders also offer deals to particular professions. For instance, Teachers Building Society works with those in the teaching profession, while Kensington offers a better earnings calculation to NHS staff, police officers, firefighters, and teachers.
‘Given that these career profiles are often more secure, Kensington felt it could be more generous in its approach as long as the mortgage will be affordable,’ says David Hollingworth. ‘It can also take account of overtime and income from a second job to help improve the borrowing amount.’
