‘Content correct at time of publishing and subject to change’
Saving for a mortgage as a first-time buyer can be extremely daunting, and even more so if you are someone who finds yourself needing a mortgage for bad credit as a first time buyer.
Once you have spoken to our experts and established that you will be able to get a bad credit mortgage, the first thing on your mind may be how much you will need to save for a property deposit. While, of course, it is important to recognise that the deposit is a huge necessity, it is equally as important to ensure that you don’t lose sight of the overall cost of buying your home. In this blog, we will be discussing this and much more in our guide to saving for a mortgage as a first-time buyer.
ISAs
While you may have missed out on opening a Help to Buy ISA, you still have the opportunity to open up a LISA (Lifetime ISA) which will provide you with many of the same benefits. These are an excellent way for first-time buyers to save for their first mortgages, as you are able to save up to £4,000 a year until you’re 50, and the government will add a 25% bonus to your savings, up to a maximum of £1,000 per year. To find out more about the LISA process, you can find more information on the UK government website, here.
Your Deposit
As we have previously discussed, this is a big part of the buying process as generally, you will need to try and save at least 5-20% of the cost of the property you have chosen. While saving more than 5% will give you access to a wider range of mortgages, at a better price, it’s important that you don’t overstretch yourself with your deposit, as this could lead to you being unable to afford other payments.
At this stage, we would recommend doing your research and finding out which government benefits you qualify for. For example, as of 3rd March 2021, the Chancellor announced a new mortgage guarantee scheme for first-time buyers and home movers in his Budget speech (Which, 2021). This scheme involves the government offering a guarantee to banks in order to encourage them to offer 95% mortgages, which, in turn, helps first-time buyers with a 5% deposit. This scheme is set to run from April 2021 to December 2022, with new and existing properties priced up to £600,000.
Will you definitely need a deposit to buy your first home?
Unfortunately, the answer is yes, as a deposit proves to the mortgage lenders that you are less of a risk for them, which is especially important if you are applying with bad credit. This also means that the bigger the deposit, the wider the range of cheaper mortgages, with lower interest rates, will be offered to you. However, you must bear in mind that if a lender values a property at less than you have agreed to pay for it, you will need a bigger deposit and there is an increased chance that you will fall into negative equity. We suggest using a bad credit mortgage calculator, like ours, to ensure that you are much more prepared.
Struggling to save
We understand that saving for your first mortgage can be incredibly difficult, so it is important to discuss the options available to you if you are struggling to save.
Help to buy scheme
We have briefly discussed this in a previous paragraph, but a help to buy scheme is a government-backed scheme that aims to help first-time buyers onto the property market. They require you to put in a 5% deposit, then the government will lend you up to 20% and your mortgage will cover the rest.
Shared ownership
If you can’t afford the mortgage on 100% of a home, then the Shared Ownership scheme may be for you. This scheme offers you the chance to buy a share of your home (between 10% and 75% of the home’s value) and then pay rent on the remaining share. After this, you have the option to buy larger shares when you can afford to. To find out more about this scheme, we recommend visiting the UK government website.
Financial help from your family members
While your family members may not have the money to help you out, they don’t need to gift you the money towards your deposit. Instead, they can actually use their savings, or property, as collateral against your mortgage. In this case, they would be non-occupying co-borrowers, to find out more about this, read our previous blog on co-borrowers here.
If you are saving up for your first mortgage and would like more help and advice on the process, then please get in touch with one of our advisors today. Alternatively, we have a wide variety of blogs that go into various topics on the subject of mortgages.