Home ownership has become a distant dream for many Britons. After decades of house price rises outpacing salary growth, trying to save for a deposit to get on the housing ladder is harder than ever.
However, on this week’s ITV Money show, consumer expert Martin Lewis shared some tips on how to give your savings a boost and speed up the process of saving for a deposit and getting free from your landlord.
As a first step, the financial journalist recommends opening a Lifetime Individual Savings Account (ISA), which “will give you a 25 per cent boost on every £4,000 you save a year”. The government is always looking to persuade people to save and give themselves a financial cushion, and with a Lifetime ISA the “government will give you a 25% bonus” on the total amount you pay into the account each year. That means if you pay in the maximum amount of £4,000 in a year, you’ll receive a tax-free bonus of £1,000 that year.
Next, the television presenter said that people should speak to a mortgage broker, as “they’ll be able to tell you exactly what you can afford and where” taking your personal circumstances into account for their mortgage comparison. Mortgages are more complicated than mere interest rates, and brokers will examine your salary along with the salaries of anyone you are buying the house with, the loan to value ratio, and many more factors. “It’s important to find yourself a good broker” he stressed.
“It is a good time to be looking for a mortgage”, but the financial guru said people not buying as a couple should consider buying with a friend or family member if they can, as a “second person always helps” when looking to secure the best rate you can.
The ‘loan to value ratio’ is a key aspect of mortgage applications and is essentially refers to the percentage of the total property value you can cover with cash in your deposit. A five per cent deposit is a 95 per cent loan to value (LTV) ratio. The higher the percentage of the property value you can offer as a deposit, the lower the LTV and the better interest rates you will be able to find from brokers.
Comparing five per cent with ten per cent deposits, Martin said: “Five per cent deposit mortgages have got cheaper in recent years, but I’d still try and push you, urge you to try and get to at least 10% because this has the biggest single drop.” Using a five-year fixed-rate mortgage as an example, he said those managing to find a deposit of ten per cent rather than five could save themselves £60 per month, which adds up to nearly £4,000 over the life of the mortgage.
Mortgages tend to be offered in LTV bands, so 95 per cent, 90 per cent, or 85 per cent, and so getting just over a boundary can help massively. However, Martin noted a rumour to say that brokers are more likely to offer mortgages where people can offer a few hundred pounds over each boundary, as offering exactly the LTV boundary figure could be a sign the buyer is struggling to meet the figure.