# How to save for a house on a low income

In this brief guide, we are going to discuss “how to save for a house on a low income.

Saving for a house  is already hard as things stand. This is due to rising house prices and increasing mortgage rates.

To save for a house on a low income could therefore be difficult but not impossible.

Saving for a house on a low income may by default restrict you to the houses which the mortgage deposit you are trying to save could afford.

Recent research shows that it takes a couple around 3.5 years to save the average house deposit and a single person around 13 years.

Assuming the average person is not on a low income, this could mean that it could take you much longer to save for a house on a low income.

## How to save for a house on a low income?

Saving for a house on a low income may be a difficult process but with a very good plan you may be able to do it.

To save for a house on a low income you will naturally need to put money away each month inorder to cover the main upfront costs of buying a house.

This means you will need to either start a savings account at a bank or create a personal savings pot where you contribute money each month towards your mortgage deposit.

The main question is how long it could take you.

The good news is that you could figure out how long it could take you to save for a house on a low income and then work diligently towards this plan.

The amount you contribute each month will therefore also decide how long it may take you to buy a house on a low income.

Steps to save for a house on a low income

• Calculate how long it would take you to save for a house on a low income
• Calculate your likely mortgage deposit
• Get a second job
• Cut down on your expenses
• Start a budget
• Collect vouchers
• Shop at cashback merchants
• Get a cashback credit card
• Sell your assets e.g cars, jewellery
• Get a Government schemes

## Calculate how long it would take you to save for a house on a low income

The first step you will want to take to save for a house on a low income is to work out how long it will likely take you to save a mortgage deposit.

To do this you will need to first figure out how much your mortgage deposit will need to be.

You can figure this out by deciding what your maximum house price will be and then seeing if you are eligible for any Government scheme that may reduce what you would have to put down as your mortgage deposit.

You can use a Government scheme calculator to see what first time buyer and home mover government schemes you are eligible for.

Most mortgage lenders will usually require at least a 5% mortgage deposit although some may ask for a bigger mortgage deposit based on their lending requirements and your mortgage affordability.

This means a maximum house price of £500,000 with a 5% mortgage deposit requirement from the mortgage lender will mean you have to save £25,000

Once you know what your mortgage deposit requirement will be you can then figure out how long it will take you to save a mortgage deposit by dividing your mortgage deposit requirement with your monthly disposable income.

## Calculate your likely mortgage deposit

We have spoken about how to calculate your likely mortgage deposit above. For you to save for a house you will need to know what your likely mortgage deposit will need to be.

As mentioned prior, your mortgage deposit will be a percentile of the house price.

If you want to save for a house on a low income then you may want to find ways to reduce your initial costs for home ownership.

This means you will need to find ways to reduce your mortgage deposit and any other associated costs.

There are government schemes which may be able to help you save for a house on a low income. We go into these schemes below.

There are also various mortgage products from mortgage lenders which make it much easier for you to get on the property ladder by saving for a house on a low income.

These could include: family deposit mortgages such as the Barclays family springboard mortgage, the Lloyds lend a hand mortgage, the Halifax family boost mortgage or the post office family link mortgage.

Don’t forget a house deposit is not the only cost you will need to pay for when buying a house, other costs include:

• The stamp duty costs
• The home insurance
• The council tax
• Renovation costs
• Utility costs such as water, gas and electricity costs.

## Get a second job

If you want to save for a house on a low income then you will ideally want to get a second job in order for you to supplement your current income and hence make it  more likely that you are able to save for a mortgage deposit in order to get on the property ladder with a low income.

A second job will increase your monthly disposable income and hence will allow you to save more towards your mortgage deposit each month and consequently it may reduce how long it takes you to save for a house on a low income.

In some cases, a second bb may not be sufficient for you to save for a house on a low income and you may therefore need to get a third job in order for your monthly contribution towards your mortgage deposit savings pot to be bigger.

Although there are numerous part time jobs available youshild be mindful about how these could potentially affect your health.

## Cut down on your expenses

If you want to save for a house on a low income then you will ideally want to reduce your monthly expenses in order for you to have more money which you can put away towards your monthly mortgage deposit contributions.

Cutting your expenses will not only improve how much you can put towards your monthly mortgage deposit contributions but it will likely also increase your mortgage affordability in the eyes of the mortgage lender if you keep it up until you apply for a mortgage.

This is because you will appear to have more money each month which you can use to pay off your monthly mortgage repayment.

There are a variety of ways you can cut your expenses each month to ensure you are able to save for a house on a low income, they include:

• Cutting down on gm expenses
• Cutting down on restaurants
• Cutting down on outings cuhs as the cinema and arcade
• Using cheaper public transport to get to work
• Shopping at discount stores for clothes and food such as Aldi
• Cutting down on night outs which may cost you a fair amount of money per month

Research  shows that on average 26-30 year olds spend £66 on a night out, and that 40% of young drinkers go out at least once a week.

This means you could be spending as much as £350 each month and over £2,500 a year.

Not going out could save you this money to put towards your house deposit contribution each month and make saving for a house on a low income much more possible.

Research from Lloyds bank shows the average adult spends about 1400 on a holiday and usually spends 17% more than they anticipated once they arrive at their destination.

## Start a budget

If you want to save for a house on a low income then you should consider setting up a monthly budget which you should look to live within.

A monthly budget will ensure you build some discipline and are accountable to yourself to ensure you can save for a house on a low income.

## Collect vouchers

If you want to save for a house on a low income then you may want to further cut down on your expenses by collecting vouchers which you can use to save money on any purchases you make.

## Shop at cashback merchants

If you want to save for a house on a low income then you should take any opportunity required to save money on your monthly expenses.

One on the main ways you can look to sav money each month is by shopping at merchants who offer you cashback on every purchase or most purchases..

## Get a cashback credit card

ANother way to ensure you are able to save for a house on a low income is to use a cash back credit card whenever you shop.

Cashback credit cards will pay you a percentage of the total spent as cashback.

Although cashback credit cards may be very good for helping you save an extra income they could also come with high credit card fees or high APRs which you should be mindful of.

If you want to save for a mortgage deposit on a low income then you should be very conscious of your credit score and how this could potentially affect your eligibility for a mortgage if you plan to use a mortgage to purchase your home.

As you are on a low income it is very likely that you will use a mortgage for your home.

Your credit score is one of the factors mortgage lenders use to determine your creditworthiness and subsequently your mortgage affordability.

#### What is your credit score & history?

Your credit score and history is a report which displays your credit behavior for a set period of time. In the UK your credit score displays your credit behaviour for the past 6 years.

Your credit score will contain information supplied to the credit bureaus (usually on a monthly basis) by credit providers and utility providers which you have agreements with.

Your credit report may also contain rent reporting data.

Your credit score will also contain data such as:

• If you are registered in the electoral roll and at what address
• All credit accounts you have had within the last 6 years. Open and closed accounts
• All public court records which may affect your creditworthiness such as the country court records, the bankruptcy records
• Your credit report may also contain information from organisations such as CIFAS.

#### How to build your credit score and history

Pay your bills on time and in full

-Expand your credit. The more types of credit you have which are all paid on time the better your score.

-If you rent and pay your rent on time, then report this to the credit bureaus.

-Ask for a credit limit increase

-Check your credit report for any errors

-Don’t close or cancel Bank accounts or credit cards. The longer you have these open, the better.

-Use only 30% of your available credit such as overdraft or credit cards. This shows that you are not too dependent on credit

-Do not make too many credit applications within 3 months. 1 every 3 months is acceptable.

-Avoid getting rejected for credit and only make applications where you have a 95% chance of approval or are pre-approved.

-Avoid adverse credit such as payday loans

-Avoid maxing out your credit card or going over your limit as it makes you seem dependent on credit. You might also incur a few fees from your credit card provider.

-Ensure you do not default on any repayments-, even if this is not credit as you can still have negative marks due to owing people or companies from things such as county court judgements, Bankruptcy or Individual voluntary agreements.

Always inform your credit provider if you are having difficulty and they could work something out with you rather than selling your debt to a collection agency which will cost you more

## Sell your assets e.g cars, jewellery

If you have any assets such as painting, cars, watches etc then you may want to sell this except they are essential for you to make an income each month.

Selling your assets could give you more money to put towards your monthly mortgage deposit contributions and therefore make it more possible that you are able to save a house deposit in a year.

Another thing you can do to save a mortgage deposit on a low incomeis to get a gifted mortgage deposit from your family or friends.

There are now a lot of mortgage lenders who accept gifted deposits although most will insist you use a gifted deposit letter which makes it clear that the person gifting you the house deposit does not have any claim over the property as it is a gift and not a loan.

## Get a Government scheme

As mentioned above there are a variety of government schemes which may be able to help you save for a house on a low income.

In some cases, these first-time buyer government schemes will reduce the amount of the property price and thereby increase the amount of mortgage deposit you have in relation to the property value.

These schemes include:

• Lifetime ISA– gives you a government bonus of £1,000 if you save a maximum £4,000 a year.
• Help to buy ISA– gives a maximum bonus us £3,000 if you save the maximum allowed of £12,000. Before you get either you should consider which is better. Lifetime ISA vs Help to buy ISA.
• Help to buy equity loan– gives you up to 40% as a 5-year interest-free equity loan. You begin to pay interest at 1.75 % after the fifth year and 1% plus RPI for every year thereafter.
• Shared ownership– You can buy between 25% to 75% of the property initially with a shared ownership mortgage and then buy more using a staircasing mortgage.
• Armed forces help to buy– similar to the help to buy equity loan but specific for the armed forces personnel giving them an increased chance of acceptance.
• Rent to buy– This is the right to buy scheme on which this guide is currently discussing. A different marketing name is just used. Watch out for this when shopping to avoid missing out on eligible properties due to confusion.
• Preserved right to buy– same as above.
• Right to acquire– similar to the above.

Depending on where you live, you may also be able to take advantage of home buying schemes provided by your local council. Example: In Norwich, the local councils provide the Norwich home options scheme.

## Use a mortgage broker for your mortgage in principle

You may want to use an independent mortgage broker to help you get a mortgage on your new home.

Mortgage brokers are important as they can access mortgage products from across the whole of the market in some cases.

This could be over 11,000 mortgage products. This may have some advantages rather than going directly to a mortgage lender.

A mortgage broker will look to understand your financial circumstances and then provide recommendations on which mortgage products may be suitable for you based on your mortgage affordability.

After giving you these mortgage recommendations, most mortgage brokers will seek your consent to apply for a mortgage in principle

This will allow you to shop for your home as more estate agents and sellers may take you seriously and it will also give you confidence that your mortgage is indeed a possibility before you make a full mortgage application.

Once you have found a home you want to buy and are satisfied with the mortgage offer for your mortgage then the mortgage broker will then look to get you a mortgage offer.

This will come with a key facts illustration document that details the features of your mortgage including how much you will pay per month.

It will also contain information on if there are any limits such as early repayment fees, or annual overpayment limits.

If you are happy with everything you can then go on to secure your mortgage with the help of a conveyancer.

Your conveyancer will manage the legal searches on the property to ensure there aren’t any issues with it.

They will oversee the sales agreement to ensure it is in your best interest, they will manage the transfer of mortgage funds, exchange contracts with the seller or their conveyancer, and set a completion date with the seller or their conveyancer.

This will then bring an end to the conveyancing process, at which point you will receive the keys to the house and move in.

In this brief guide, we are going to discuss “how to save for a house on a low incomer”.