Practical steps to save for your first home.
With house prices increasing steadily since the turn of the millennium, the big house with a white picket fence and garden seems to be hurtling further and further away for the average UK adult.
However, the desire to take out a mortgage is still very much a pressing priority for our community.
What is a mortgage?
A mortgage is a loan taken out to buy a property. You can apply for a mortgage directly from a bank or building society, or you can use a mortgage broker to help compare different mortgages on the market.
Whilst there’s an influx of information on mortgages interest rates, different types of ISAs and all that good stuff, the road to successfully taking out a mortgage must begin with good practices and habits.
It’s no use finding out information if you don’t have the tools necessary to transform your learnings into real action.
So – how do you set your mind to the mortgage?
1. Be specific and intentional when setting your goal
Goal setting is only useful when it’s intentional and specific. One of the greatest challenges many of us face is in deciding what it is we want to achieve – and this is no different when thinking about buying a house.
You’ve decided you want to be a homeowner.
Have you considered what type of mortgage you want, what property you want to buy, how much you can borrow, how much you can save for a deposit, how long you want your mortgage to be, and the type of interest and rate that you can afford to borrow at?
These are some of the questions you will need to answer before engaging with banks or mortgage brokers.
Make your goal so specific that you can see it. This also makes it easier for you to identify gaps in your knowledge, leading straight into our next top tip.
2. Be aware of the most up to date information
Now that you know what you’re aiming for, it’s time to check how realistic it is. You’ve identified the destination, it’s time to hone in on the route.
If you’ve decided that you’d like to start the process of saving for a Mortgage deposit it’s best to get a sense of how the burden of a mortgage will affect your finances. You will also need to find out the maximum amount (4.5x your yearly salary) you can borrow based on what you currently earn.
You can get a picture of your current finances through the Portify cashflow tools available in app.
You can check this through the Mortgage Affordability Calculator provided by MoneyAdvice Service.
Once you have done this, you will need to find out how your credit score will impact the amount you can borrow. You can check this through the Loan Payoff calculator provided by MoneyUnder30.
If you’re self-employed, there are other things to consider – you’ll need to gather your Personal Tax Returns and the last 12 months worth of contracts. We’ll touch on this in another blog post.
More importantly, before you start using these tools effectively, you need to be intentional in setting aside some time in your calendar to do this.
We’re all busy people with unpredictable schedules, but dedicating just an hour a week on the weekend to fill in the gaps will get you further along your goal than you think.
This week, assign one hour to look at all things related to mortgage. Take some notes somewhere you won’t forget, and pretty soon you’ll become the expert in answering your own problems.
3. Start small and practice the habit of saving
Getting a mortgage can be daunting, especially if it’s your first one. We often jump straight to saving for a deposit without assessing our attitude to money and our management of income on a small scale. Just because you are making enough every year to afford your potential mortgage payments, does not make you the best candidate to have one.
What you do with the small is magnified with the big. What is your saving like at the moment? Are you consistently hitting your smaller financial goals?
Are you capable of staying within your budget on a weekly basis with your expenditures? Have you saved a large sum of money for a need before?
Start with smaller tests. Open an account and limit your access to withdrawing the account, and make weekly or monthly contributions to your pot. See how much you can cut down on your expenses by charting how much, over the next month, you spend on entertainment, food and basic necessities. Once you’ve exercised the saving muscles, you’ll ensure you’re in tip-top shape to save for a mortgage.
4. Find accountability and implement milestones
Sometimes we just need that extra push to meet our goals. It may be worth identifying a friend you can trust to check in with biweekly or monthly on how well you are doing in meeting your monthly savings goal. It may be having a self-review session every month, and you assess just how well all the big plans you’ve implemented have been going. It may be worth tapping into facebook forums and local community groups.
Whatever medium works for you, it’s important to go above and beyond leaving it down to random self-check ups. You need to be as rigorous and specific in goal setting as you are with reviewing!
Saving for your first mortgage deposit isn’t easy, and with times quickly changing, there’s an incredible amount of pressure to buy a house amidst the storm. That doesn’t mean it isn’t a possible or attainable goal. It all starts with process.
We’ll be delving deeper into Mortgage specifics in our next few blog posts so stay tuned!