Baby Step 3b – Save a House Deposit
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Baby Step 3b (BS3b) is to save for a house deposit.
According to Dave you should ‘put at least 10–20% down on a 15-year fixed-rate mortgage that is no more than a quarter of your take-home pay’…that’s a lot to take in when you’re thinking about such a big purchase so lets break it down a little bit.
10-20% down
To get a mortgage in the UK at the moment you generally need a minimum deposit amount of 5% BUT to get a good mortgage interest rate you usually need more that 20%, if you can manage to get nearer the 40% range of deposits then you will get the best of the best interest rate deals.
Put simply…
The bigger the deposit, the better the interest rate, the lower your monthly repayments, the cheaper the mortgage!
15 year fixed rate mortgage
Ideally you should try and find a 15 year fixed rate mortgage as it’ll save you big money in interest in the long run, versus a 30-year or variable rate mortgage.
There are so many mortgages on the market at the moment which can make it hard to know what to look for, the MoneySavingExpert website had a Mortgage Best Buys tool that can help you compare whats currently available and give you a better idea of the difference it can make to costs – MSE Mortgage Best Buys Tool.
No more than a quarter of your take home pay
This bit is just for the simple fact that it’s just good sense, you don’t want to buy a house that stresses you out each month trying to find the money to make the mortgage payment. If your home is constantly putting you in a state of stress because of the size of the mortgage payments you wont be happy living there!
So, where should you save?
If you are a first-time buyer the best options for you are either the Help To Buy ISA or the Lifetime ISA as both give you a bonus on your savings towards your first home.