How to save for a mortgage

2019-12-09

General

When it comes to securing a mortgage, you want to use time to your advantage as much as possible.

Taking on a mortgage is one of the biggest financial commitments a person can make. It can also be one of the most rewarding.

To enjoy all the rewards of a mortgage, you need to financially prepare yourself as well as possible in advance of submitting your application. And that means saving up for a deposit.

Saving for a deposit is in your interests

If you’re a first-time buyer, one of the key requirements you’ll need to prove you have when you submit your mortgage application is a deposit.

The Central Bank rules in Ireland state that first-time buyers need to have a deposit that is 10% of the house price you’re looking to purchase. So, you’d need a deposit of €25,000 for a house that is selling for €250,000. Regular saving also helps to address the issue of demonstrating your repayment ability to the mortgage lender.

The thought of saving for a deposit can be filled with stress for some people. It’s a significant amount of money after all.

However, a lot of that stress can be reduced when you change your mindset around saving this lump sum.

Firstly, a deposit is the strongest negotiating tool you will have in your mortgage application. If you think of a deposit as helping you, rather than holding you back, saving for one becomes a lot more motivating.

Secondly, it’s empowering to work towards a goal. We’re not downplaying the effort and commitment it takes to save, but we also know that people regularly save more than they think they can once they put their mind to it.

Our tips below on saving a deposit for your mortgage are a guide to get you started:

Use time to your advantage

If you already have a strong savings habit, that’s great. If you don’t, now is the time to start one.

People save at different rates, but a general rule of thumb is to factor in 12 to 18 months to build a decent deposit. Get really clear on your budget and understand what income and expenses you have to work with.

A budget tool can really help. There are many different templates on line and you’ll easily find one that suits you best. The Competition and Consumer Protection website has a simple and easy to use budget planner that you can use for free.

Reduce your expenses as far as possible

Sometimes the best advice is the advice no one wants to hear. We all much prefer spending money on the things we enjoy when we want to, rather than delaying our enjoyment and putting the money away.

But when it comes to saving for a deposit you have to practice a significant degree of self-control.

On the upside, this advice also removes a lot of the perceived complexity around mortgages. Saving for a house needn’t be intimidating; some focus and changes in your spending patterns will do most of the job for you.

Costs to look at include big ticket items:

Holidays/travel – who doesn’t love a trip? But when you’re saving for a deposit, a short-term sacrifice now will result in a lot of long-term gain later. No one is saying that you have to forego all travel for as long as it takes you to save a deposit, but you can cut big costs if you change your travel habits. City breaks are best put on hold until after your house purchase. And for large summer or winter breaks, think about holidaying closer to home in Ireland rather than spending money on long haul destinations.
Transport – do you run your own car? We all love the convenience of our own car, but using public transport can help you make a major cost saving while you’re focused on your deposit.
Accommodation – can you reduce your rental accommodation costs? If you’re renting an apartment, investigate to see whether renting a room is an option for you. Could you move back in with your parents? Could you swap babysitting services for a reduced rent with friends or family who have children? All of these options require a lot of thinking to figure out if they work for you (and the other party). But the point is to illustrate that you’re in the power seat to make decisions that can radically reduce your outgoings.

Consistent, small savings add up to a big amount. Look at your smaller expenses too:

Coffee – let’s not turn coffee into another avocado gate. We know the affordability questions is more nuanced than that. Rather, let us look at where we can make changes to our expenses to help us achieve our goals. If you’re buying a coffee a day, there’s a considerable amount of money to be saved by reducing that habit. It’s a good thing to treat yourself, but think about how the 80/20 rule could help you here. 80% of the time you cut back your coffees, and 20% of the time you treat yourself to your favourite mocha. Winning on both fronts!
Work lunch – the exact same concept applies here. Buying lunch everyday, even if only a small sandwich, adds up. Make your own lunch and bring it to work. It’s not an exaggeration to say that you could save close to €1,500 this way in a year.
Dinner – ready made meals and take-aways can be a godsend when you’re tired from a full day at work. But focus on the long game. Not only is it healthier to cook from scratch, it’s much more cost effective too. And you can cook in bulk to save you time. Making this effort will be worth it when you see the extra €2,500 – €3,500 you can save this way per year.
Entertainment – you can still have a social life when you’re saving for a deposit. Just think about it a little bit differently. Some of your close friends and family may be looking to save for a deposit too. A walk in a park or a trip to a free art gallery will still be fun, but will cost way less than meeting for cocktails after work every Friday.

Keep focused on your end goal

Saving a deposit for your first home is a rite of passage that will stand in your favour for years to come. No, it’s not a quick process to save up the thousands you’ll need. But it is a perfectly achievable goal to save the amount required with consistent focus and actions.

There’s also the Help To Buy Scheme for first-time buyers of newly built properties. This government scheme has just been extended to the end of 2021 and gives back a 5% tax rebate up to a maximum value of €20,000 on a maximum purchase price of €500,000.

This scheme and your deposit means home ownership is within your reach. Make sure you get saving now.