Did you know saving for a mortgage takes between 2 and 10 years on average?
So, if you're thinking about saving for a mortgage, start now. Don’t put it on the long finger - there will always be an excuse to put it off.
What you should do when saving for your mortgage
Saving starts with a budget
Setting a budget will help you stay accountable for what you're spending your money on. Start by considering all your essential monthly costs and decide what you're comfortable cutting back on. Then you will see how much you can put away everytime you get paid. There are plenty of free budgeting apps you can use to help you with this.
Reduce your outgoings
Reviewing some of your biggest outgoings, particularly anything that’s on direct debit from your account can help you make a lot of savings. Look at gym memberships or subscriptions that you don’t use. If your contracts are up for renewal research a cheaper alternative while you’re saving for your mortgage. You can also have a look at reducing any extras you don’t need on your phone plans or car insurance that might help boost your savings.
Find out how you can reduce your car insurance premiums with our AA guide.
Set your mortgage savings timeline
To get yourself into a mortgage saving mind frame, set yourself a realistic timeline. Keeping your end goal in mind can help you avoid spending money you could be saving.
Keep track of your spending
After you have set a timeline keep track of your spending for the next while. This will help you see what you are spending most on each month and whether you could cut back on some things.
Open a separate mortgage savings account
If you have a separate savings account that's dedicated solely to saving for your mortgage you will be less tempted to dip into it. Consider setting up a notice deposit account. This means you must request access to your funds in advance. Before you open your savings account make sure you shop around for the best interest rate.
Set up a standing order
Having a standing order means your allocated monthly savings will automatically go into your savings account. Setting this up will help you stay committed to saving every month.
What not to do when saving for your mortgage
For most of us, a mortgage is the most money we will ever borrow. So don't underestimate what is considered when your bank or building society is investigating your finances. We cover just a few of the biggest red flags for mortgage lenders.
Here are some of the things you shouldn’t do when you start to save:
Avoid late or missing credit card payments
This is a red flag for mortgage lenders and will be seen as a sign of bad money management or lack of money. One late fee won't affect your mortgage chances, but if you haven’t made any payments before your next statement, you could damage your credit history. Avoid any issues with late credit card fees by setting up a direct debit each month to cover credit card bills.
Look after your credit history
Any record on your credit history will be considered for your mortgage application. Having multiple loans or missed repayments are red flags on your financial history. While it might not be something you planned to do, having too many outstanding loans can make you a higher risk applicant for mortgage providers. Any missed loan repayments will negatively affect your credit history.
Don't take a loan out to cover your deposit
Why it might seem like the easiest thing to do, no bank will consider you for a mortgage, before checking the central credit registers (CCR) for any other personal loans, credit cards and overdrafts you might have.
Don't forget to leave some wiggle room
Saving and budgeting can be challenging but leaving some room for the things you enjoy in life is important too. You will be less likely to dip into your savings if you account for this each month.
Don't underestimate your day-to-day spending
It's the little things that you spend your money on that add up to more in the long run. Saving for a mortgage is a long-term goal so you may want to rethink changing your daily habits. This could be anything from walking to work to save on bus fare or making your coffee at home.
Don't forget to account for mortgage protection and other costs
Within your savings, you will need to consider the extra costs that crop up in the final stages of getting a mortgage. So don’t forget to budget a little extra for mortgage protection, stamp duty, solicitors’ fees, and site surveys. You won't be caught off guard by extra costs if you consider them in your savings plan.
Saving for a mortgage if you were on the PUP or WSS?
The pandemic left a lot of people with the inability to save for their mortgage and even delayed mortgage applications. If you had to dip into savings over the pandemic have a look at your budget and timeline and edit it accordingly.
What if I was on the Pandemic Unemployment Payment (PUP)?
If you are no longer on the PUP and back to full-time employment you can apply for a mortgage as usual.
How will you be affected if you are on the PUP?
If you are currently on the PUP, you will not be considered for a mortgage. Once you get back into full-time employment you can get your savings back on track and then apply for a mortgage.
How will you be affected if you were on the wage subsidy scheme (WSS)?
If you previously were supported by the wage subsidy scheme and you are now back to full-time employment, you will be able to apply for a mortgage as usual.
How will your mortgage savings be affected if you are currently on the WSS?
If you are still on the WSS and ready to apply for your mortgage, you will have to supply extra documentation from your employer. It is not impossible, but some lenders will find it hard to sign off on a loan if your employer is still on the WSS.
Following our guide and staying focused on the goal of your dream home will help you on your savings journey.
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