SAVING for a home is no easy task as the cost of living crisis combines with sky-high property prices – but there’s help available.
Free money can bump up your deposit or ease the costs of buying.
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Sonya Matharu, senior mortgage broker at The Mortgage Mum, shares her tips and tricks to get your hands on extra cash for your first home.
Cashback mortgages
Some mortgage lenders offer free cashback as part of deal incentives for first-time buyers.
The amount varies but can be anywhere from £200 and up to £1,000.
Sonya said: “The cash will come through on completion and gets sent to the solicitor with the mortgage funds.”
In most cases, the solicitor takes their bill out of these funds, so the cash will in effect ends up going towards those fees, according to Sonya.
She added: “It can be great for first-time buyers who could use it to get a chunk of their legal bills paid.”
However, cashback deals are one of many different types of mortgages available to first-time buyers.
Sonya said: “It’s important to make sure the mortgage product that is offering cashback is actually the most suitable product for you overall – and not to base a decision on this feature alone.
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“Other products may come with better rates and features so it’s important to take the whole deal into account.”
A good mortgage adviser can help discuss the different mortgages available for your situation.
For example, a deal that doesn’t come with cashback but has a lower rate is likely to be more beneficial overall.
Savings account bonuses
A lifetime ISA is a government-backed saving scheme that provides a cash bonus that can be used to buy a first home or for retirement.
You can put in up to £4,000 a year with the government adding a 25 per cent top-up worth up to £1,000 a year.
Sonya said the accounts are used by many first-time buyers, but you need to be a long-term saver to get the full benefit.
She added: “The earlier you start saving the better if you think you may want to use one of these accounts to buy a home.”
The savings can be used by a first-time buyer once the account has been held for 12 months.
So, if you are hoping to buy a home before then, the account will not be suitable.
Also, keep in mind you will have to pay a 25 per cent withdrawal fee if you take the cash out for any other purpose than buying a first home or a pension.
If you’re using the savings as a first-time buyer, keep in mind the property must also cost less than £450,000.
Developer incentives
If you’re buying a new home, some developers might give you cash or other freebies as part of an incentive package.
Some builders have been known to offer up to five per cent towards a deposit or pay for the stamp duty of a buyer.
The level of cash available depends on the developer and ultimately how keen they are to make a sale.
If you want a new build home, it’s worth haggling with the builder to see how much you can get – whether that’s cash or other freebies – before agreeing to a sale.
Bear in mind that new homes have a premium that makes them more expensive than other homes where your money may go further.
High interest
When pulling together a deposit, look around for the accounts that will give you the greatest rewards for your cash.
Sonya said: “When saving it’s important to find the best savings rate – generating the most interest is in effect free money towards your deposit.”
Rising interest rates mean savers can now get better returns, so be prepared to move money around to take advantage.
Before you start saving, it’s a good idea to get a target goal based on your own situation.
Sonya said talking to a mortgage broker at the outset means you can find out how much can borrow and subsequently the sum you need for a deposit.
Family help
Many first-time buyers get free financial help from older family members when buying their first property.
Giving money towards a deposit can form part of inheritance planning, and is a conversation that could be worth having with family.
Sonya said: “A gifted deposit is when you receive money from usually a family member to form all or part of the deposit.
“Lenders tend to be comfortable with a gifted deposit from immediate family such as parents, siblings or grandparents.
“However, there are few lenders that accept gifted deposits from distant relatives and even close friends.”
There are also a number of mortgage products out there that allow family members to use their financial clout to help first-time buyers on to the ladder, including guarantor mortgages and joint borrower sole proprietors.
A guarantor mortgage lets you add someone else to your mortgage who is responsible for making repayments if you can’t.
The latter involves a relative or close friend contributing some of their income to another’s mortgage without joining them on the deeds.
Do you have a money problem that needs sorting? Get in touch by emailing [email protected]
