Should all my savings go into the deposit?
A bigger deposit can mean a lower rate and a smaller loan. Putting all your savings into it leaves nothing for the costs of the first months in a new home. What to weigh up before you decide.
A bigger deposit can mean a lower rate and a smaller loan. Putting all your savings into it leaves nothing for the costs of the first months in a new home. What to weigh up before you decide.
Lenders price mortgages by loan to value: the size of the loan against the value of the home. A bigger deposit means a smaller loan and a lower loan to value, which can bring lower rates and more choice of lenders. It also means lower monthly payments and less interest over the life of the mortgage.
Your broker can show you the rates available at each deposit level, so you can see what an extra amount saves you.
Buying a home costs more than the deposit. Make a list of what you will need on top.
Money paid into a deposit cannot be taken back out without borrowing more or selling the home.
Once you own a home, you pay for repairs such as a broken boiler yourself. If you lose your job or fall ill, the mortgage payment is still due.
Think about how many months of essential spending you would want to be able to cover, and keep that money somewhere you can reach. Income protection can pay part of your income if you cannot work through illness or injury. Your broker can advise on it.
If some of your savings are invested, selling them for the deposit may create a capital gains tax bill if they are held outside an ISA. The value can also change between the day you decide and the day you sell.
Money in a pension can usually only be taken from the minimum pension age, and taking it has its own tax rules. If you are thinking of using pension money for a deposit, that is a decision to take with advice before you take the money out.
Tax rules and pension ages change over time. Check the current position before acting.
The choice is between a lower monthly payment and keeping money you can reach. Your broker can show you the difference in payments between two deposit sizes. You can then weigh the saving against keeping money you can reach.
If you have more savings than you need for the deposit and an emergency fund, what to do with the rest, whether to put it into the mortgage, a pension or investments, is a separate decision.
Your mortgage broker can show you the rates and payments at different deposit levels, and the costs of buying on top of the deposit.
If the decision involves investments or a pension, or you want advice on what to do with savings beyond the deposit, ask your broker to introduce you to a regulated financial planner.
This article explains how things work. It does not take your circumstances into account. Your mortgage broker can introduce you to a regulated financial planner at Equity & General where the question needs one.
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