Estimated reading time: 5 minutes
Saving up for a mortgage deposit can seem like the most difficult part of buying a home. While having a large deposit gives you the best chance of getting a good mortgage deal with a low interest rate, there are options available for doctors with lower deposits and government help to get you on the housing ladder. The Doctors Mortgages guide to saving for a mortgage deposit will give you the information you need when you are thinking about taking out a mortgage.
What’s covered in this guide
- What are your mortgage deposit options?
- Work out much you need to save
- Using a gift for a mortgage deposit
- What is a Family Springboard Mortgage
- Don’t delay saving for a mortgage deposit
- Reviewing your mortgage deposit savings account
What are your mortgage deposit options?
Doctors buying their first home are putting down on average a 20% deposit. This could mean finding a daunting £20,000 (on a £100,000 property) or more.
You might struggle to raise this kind of money on your own and there are some options available to you.
There are mortgages available that require a lower deposit of around 10 or 15%. Always shop around to find these offers and remember, a lower deposit will attract a higher mortgage interest rate. A specialist doctors mortgage broker will be very useful in this instance.
There are also a few government schemes to help first time buyers looking for a junior doctor mortgage to get on the property ladder. Some of these are limited to new build homes.
Best place to start working out the size of the mortgage deposit you’re going to need is to check house prices in the area where you want to buy. Rightmove is a great resource for this research.
Work out much you need to save
Regular saving is more effective than relying on irregular one-off sums.
Once you know the amount of deposit you’ll need, make a plan to reach this goal.
How much you can afford to set aside each month will determine the time you’ll need to save up. Be realistic about how much you can afford. It can help if you set up a standing order into savings for the day after you get paid.
For example, if you want to buy in three years’ time and will need £20,000: you’ll need to save around £500 a month.
You can still hit your goal with a smaller savings budget, it will just take longer.
It’s important while you’re thinking about how much you can afford to save each month to consider what savings you can make to your own budget. For example, can you cut down on a daily coffee or a weekly takeaway? The extra money will soon mount up.
Using a gift for a mortgage deposit
It’s becoming more common for doctors to rely on a sum of money gifted by a parent or grandparent for their mortgage deposit. If someone has given you money for a deposit in the last 12 months, let your mortgage company or broker know when you apply for a mortgage.
You might not have to do anything, but if required you may need to provide prove your deposit was a gift. This depends on the size of the gift and where it’s come from.
What is a Family Springboard Mortgage?
A family springboard mortgage, or family deposit mortgage, could be an option if you’re unable to raise enough deposit to get on the property ladder on your own. You’ll need a family member who’s happy to help you out financially by placing savings into an account held by the lender; but these agreements can be mutually beneficial for you and them.
If you are a GP Partner and you would like to talk to us about GP mortgages, please get in touch.
Don’t delay saving for a mortgage deposit
The sooner you start saving the quicker your mortgage deposit goal will be reached.
Once you know how much you need to save, you need to think about where you’ll save it.
You might already have a bank account that lets you set up a separate pot for your financial goals, or another savings account you could use for this money. It might be a good idea to keep your savings in a separate bank, not connected to your current account.
Some people will be able to achieve their goal quicker than others. Don’t be discouraged by this, keep focused and you will get there.
You can earn a lot of interest on your savings over a long period. Use this as a motivation and build it into your calculations for your goal.
An instant access savings account might seem convenient. But they often pay a lower rate of interest, and if you won’t need the money for a few years, you don’t need to get at the money straight away. So you might want to look at a longer term savings account which pays you more interest.
Lifetime ISA (LISA) are great for saving for a mortgage deposit. If you’re first time buyer under 40 this could give you a 25% boost on your savings. For every £1,000 you put into your Lifetime ISA, the government will add an extra £250. This would leave you with £1,250 at the end of the tax year.
Setting up a regular standing order to automatically transfer money into your savings account can help you save even faster.
Reviewing your mortgage deposit savings account
At least once a year check you’re getting the best rate of interest on your savings. Don’t move your money about if there is a penalty charge to pay. Remember to make the most of the £4,000 allowance to your Lifetime ISA before the end of the tax year (5th of April) to get the maximum 20% bonus. Top tip!
Keep assessing your income and expenditure. If your income goes up, you may be able to add the extra money to your standing order each month Your mortgage deposit will be saved sooner.
Next steps
- Get a separate savings account straight away. Make sure it’s for the sole purpose of saving for a deposit, you’ll be less tempted to dip in!
- Make a plan of your spending budget so you know how much you can afford to save each month.
- Check with family members to see if there is support for you with reducing your deposit. Look at other ways of reducing the deposit you need, for example, through a Help to Buy scheme.
- Set up a regular payment into your savings account every month. Consider using an automatic savings app such as Chip.