With the increasing cost of living impacting all of us, we look at how to afford a new-build home. Whether you’re a first-time buyer or you’re looking to step up to an energy efficient new build, we share tips on affordability and budgets.
While saving, and buying, is more difficult with increased costs – it’s not impossible.
Here’s what we recommend…
Seek expert financial advice
There’s never been a more prudent time to get expert financial advice. And this is especially so if you are looking to secure a mortgage. The earlier you can prepare your finances and enlist a trusted mortgage broker, the better your chances of securing a mortgage will be. Mortgage brokers will look at the bigger picture surrounding your finances, including future rising costs. They will be looking to see how well you have been managing your finances over the last few months, and whether there is flexibility in your budget to manage any further cost rises.
If you are looking to get financial advice, start by getting at least 6 months of finances in order.
And if you are saving for a deposit, you might also want professional advice on the best way to maximise your savings to reach your target deposit amount quicker.
Mortgage brokers know the financial landscape
There are periods of time where mortgage rates will be higher, for example in the immediate aftermath of a Bank of England announcement about base rate increases. However, this is usually short-lived and there’s a settling down period where mortgage rates steady a little more. It’s knowing these patterns and understanding how the markets work, where financial experts make the difference.
They won’t just help you find a mortgage with the lowest rates. More crucially, they will help you secure a mortgage you can afford to pay.
Do you know about the government LISA scheme?
If you meet the criteria, you can get help saving for a deposit for a property with a government Lifetime ISA (LISA). The LISA scheme is designed to help young first-time buyers between the ages of 18 and 39 years, to save for a home. When using a Lifetime ISA, the property you are buying cannot exceed £450,000 and you must buy your property with a mortgage.
The good news with a LISA, is that they are accounts opened by individuals. So, if you and your partner are both first-time buyers, and meet the other criteria, you can each open an individual Lifetime ISA. The benefit here is that you gain the government bonus on each of your accounts.
If you pay the maximum £4,000 into your own Lifetime ISA, you will receive a tax-free government bonus of 25% which equates to £1,000. And your partner can do the same.
It is important to note that Lifetime ISAs count towards your overall ISA limit. The maximum you can save into a Lifetime ISA during each tax year is £4,000. As they are designed to be long-term savings products, there are charges for withdrawals from a Lifetime ISA after a 12 month period. Find out more about Lifetime ISAs here.
Check any savings accounts you have
If you are saving for a deposit, make sure any savings you have are earning good interest. While mortgage rates have increased, interest rates for savers have been going up to. Yet some banks and building societies are slower to increase their rates. While interest rates on savings will never match those of mortgage rates, if you have a nice lump sum growing, make sure it is earning a decent rate of interest.
Keep an eye out on the latest savings products and move your account if you have to, to get the best interest rates for the account you need. Can you lock your money away for a year, or two years? If you don’t need regular, immediate access to your savings, the higher rates of interest can be found on longer term savings accounts. Spend time shopping around and see what’s out there. Use the interest rate calculators available and compare them to your current rates of interest!
Small steps to big savings
We know how hard times are, and it’s likely you have done everything possible to cut back on spending. But if a mortgage is looking difficult right now, to afford a new-build home, you might need to save more. After all, the bigger the deposit you have, the more competitive the mortgage deals with lower rates will be.
Here are some ideas for small changes you can make, to help add a little bit more to the savings pot.
- If you don’t use it or wear it – sell it! The second hand marketplace is full of buyers looking to save money right now. Have that clear out (you will need to do one when you move out anyway) and raise some money from the items you no longer want or need.
- Try an amnesty. Aim to give something up for a month and see how much you save. Whether it is alcohol, meals out, take-aways, or even eating meat – you will be surprised how much extra cash you will have at the end of the month.
- Check your subscriptions. If you haven’t already done this with the cost of living squeeze, then now’s the time to think seriously whether you get your money’s worth from any memberships or subscriptions you have. If not having them can help you save more, then give them up for a period of time. You can always renew or sign up again in the future once you have bought your new home!
- Get paid for spending. Sign up to loyalty cards at places where you shop frequently, to get special offers, and in some cases, trade points in for vouchers to treat yourself to meals or days out. And look at getting a cashback credit card to earn a percentage of what you spend, which comes to you as credit on your bill. To get the full benefits of a cashback credit card, you should always pay off the balance in full at the end of every month to avoid being charged interest.
Think ahead and look at the long-term
The current cost of living makes for a worrying time, and it paints a bleak picture if you compare how things were this time a year ago.
But it’s important to stay positive, and don’t give up completely on your dream of owning a brand-new home. Any big purchase always takes time, it just might take a little longer.
Something else that is important to do during these difficult times, is to look ahead at your original plans. Is the area and property you want to buy right for you, not just for the next couple of years, but for seven or eight years down the line? Will the property be big enough? Is the area suitable should you start a family? If the property market does cool and you can’t move on as quickly as you first hoped, it’s important your purchase is right for the long-term.