It’s quite a daunting thought to commit to saving for a house, initially we were both a little overwhelmed by the prospect of maybe not having holidays or being able to splash out over the next few years but as we continue to fork out thousands each month for rent and utilities it was a no-brainer, we desperately want a place to call our own!
We’re in the very early stages of saving but I did a lot of research on the best ways for us to save and looked into all the options available to us so I thought I’d share some of my thoughts and findings you with incase you’re in a similar position or hope to be in the future.
To give some context, we’re looking to buy in the South East of England where house prices are incredibly high, as a result of this we’ll be looking to get a 95% mortgage in a few years time, this means we have to pay slightly more each month in mortgage repayments but it means we only need to save 5% deposit as opposed to 10, 15 or 20% – which would take us forever!
Help To Buy
One thing available to first-time buyers is the Help to Buy scheme. There are two things on offer from Help to Buy and these are:
- Help to Buy ISA: This is a savings account which most banks offer, once you open the account you can deposit up to £1,200 initially and then you can continue to save up to £200 per month going forward. When you’re finished saving the Government will top-up your amount as long as you’ve saved over £1,600 in total. For example if you save between £1600 and £12,000 they’ll top it up by 25%. If you save over £12,000 they’ll top it up by £3000.
- Unlike a traditional ISA you get additional funding from the government to help boost your deposit.
- You can open one Help to Buy ISA per first-time buyer, so if you’re a couple that means both of you can apply and potentially receive a £6000 top-up.
- You’re restricted to the properties you can put your bonus and depost against. This is ultimately what turned us off. The property you’re buying must cost less than £250,000 or less than £400,000 if you’re in London. In Hampshire the properties we’re looking at are from £280,000 upwards so this ISA would restrict us too much.
- Help to Buy Equity Loan: The other offer from Help to Buy is an equity loan where the government lend you up to 20% of the cost of your new home, so you’ll only need a 5% deposit and 75% mortgage.
- You only need a 5% deposit upfront plus a mortgage of 75% from the bank – this will cut down your costs and savings needed straight away.
- Personally, we see this as a con as it’s limiting the houses you can choose from but this equity loan is only available on new-build properties. There are lots of different agents across the country taking part but it does limit your choice of home and location.
- What is an ISA? ISA stands for Individual Savings Account and allows you to save money tax-free. Our ISA is a Cash ISA which is simliar to a traditional savings accounts except there are limits to how much you can save each year and you don’t pay tax when you earn interest. You can pay up to £20k in this tax year, tax-free.