How To Save For A Mortgage: 7 Key Tips
For most people, a mortgage is the biggest financial leap they will take in their lives. The word “mortgage” is literally French for “death contract”, because you’ll spend most of your life paying it off. And once you get a look at the numbers, you’ll understand why.
Right now, Central Bank has capped the amount that people can borrow for a mortgage to 3.5 times their income, with first time buyers required to provide a 10% deposit, and all others, 20%. With the average Irish wage at €39,000, this means the average worker can get a mortgage for €136,500, or €273,000 for a perfectly average couple. But with house prices averaging at €263,000 nationwide, or €375,000 in Dublin City, couples aren’t exactly spoilt for choice. In such a competitive market, getting your foot on the ladder is more important than ever. With that in mind, here are seven key tips to save for a mortgage.
Set targets: what, where, when
“Making a list” is often the step we take when we feel we should be doing something, but don’t want to actually do much work. But when it comes to something as important as a mortgage, setting targets for yourself is absolutely essential in determining realistic goals and timeframes. If you want a full mortgage of 3.5 times your income, you need to figure out what 10% of that will be, and how much you can save each month to achieve that.
That’s relatively easy maths, so you could probably figure it out in your head. But numerous studies have shown that writing down your goals causes a different psychological reaction to simply thinking of them, and makes your 42% more likely to achieve them. It may seem like a step so simple it can just be skipped, but writing down your goals is the first step in achieving them.
Use Alternative Transport
According to the CSO’s Household Expenditure survey, the average Irish household spends €6,448 on transport per year (excluding holidays, business trips etc). While about €2,310 of this is spent on the purchase of vehicles, that still leaves an average of €4,138 per year being spent on fuel and public transport.
Obviously, the forms of public transport available to you will depend on where you live and work, but unless you’re already using a free form of transport like walking, you need to switch to a cheaper option. This could mean taking a bus, walking some or all of the way, or availing of something like the Bike to Work scheme. The savings you can make on transport could make up a huge proportion of your deposit, so this is an area worth exploring thoroughly.
Restructure Bills
The average annual cost of running a household in Ireland is around €16,169.15, which is roughly 42% of the average wage. While this estimate includes things like mortgage repayments and insurance, which presumably won’t affect you, there are still many costs that add up for renters. The average spend on heating per year, for example, is €708, while electricity costs €943. Telephone and broadband come in at around €489, while basic TV costs €517, and bin collection costs around €305.
Although these costs are, for the most part, inescapable, you can save a lot by shopping around. According to an analysis conducted by bonkers.ie, shopping around can help you make huge savings in a number of different areas. By switching suppliers, you could save up to €267 a year in electricity, up to €500 on TV and broadband, €500 or more on health insurance, and even €150 on bank fees. Take the time to look at some comparison sites and you should be able to get a rough idea of how much you could save relatively quickly.
Watch Food and Drink
According to the CSO research, the average Irish household spends €123 a week on food, and €28 a week on tobacco and alcohol. Over the course of a year, this comes to a combined total of €7,852. While you obviously can’t cut these costs entirely, you can save quite a bit by adjusting your habits.
For example, the average cost of buying lunch every day works out at €1,440 a year, while buying just one coffee a day can add up to €1,200. Similarly, we throw away about one-third of the food we buy for home, which ends up costing anywhere between €400 and €1,000. These may be small indulgences, but they add up over time, and simple actions such as drinking the free coffee at work, bringing a packed lunch, and cooking smaller portions at home can all add up and save you a lot of money in the long run.
Get Frugal
While it may not be shocking that housing, food, and transport are all among the biggest household expenses, it may come as a surprise that they place second, third, and fourth, respectively. It turns out that the largest category of household expenditure is actually “Miscellaneous”, which covers money spent on things like babysitters, books, toys, and basically anything that you are buying of your own volition.
While you should still feel free to enjoy yourself, you should try and pinch as many pennies as you can. The very fact that this category overshadows how much we spend on food or housing shows just how easily our spare cash slips away, leaving us with little to show for it. Try setting a strict budget for yourself, and plan your free time around that, which will help prevent you from spending money on unplanned things. Additionally, you can always try to reduce your bills by ensuring you switch off lights, unplug appliances, and time the heating correctly.
Holiday in Ireland
This piece of advice may be harder to stomach for people who enjoy the chance to go abroad and catch some sun, but if you want to get that mortgage approved as soon as possible, skipping a trip abroad for one year could give you a significant boost.
According to multitrip.com, 66% of Irish people will spend about €2,500 going away, with a further 26% spending up to €5,000. Although taking a holiday in your own country is never as popular as going abroad, it can save you a lot of money on travel costs, and the convenience of being in your own country, where you can use your phone, speak the language, and understand the price norms means you won’t be hit by as many surprise costs, such as the taxi from the airport, or the price of food in the only local restaurant. Plus, you may be pleasantly surprised at what Ireland has to offer.
Rent a Room
While cutting costs is an essential part of saving for your mortgage, you also have the option of supplementing your income. One of the easiest ways to do this is by renting out a room in your house, which can be done tax-free up to €14,000 a year. If you have the space, finding a tenant should be relatively easy and, depending on how big a mortgage you want, this tactic alone could help you secure a huge part of the down payment.
Saving for a mortgage is never easy, and the current state of the market isn’t making things any easier. But if we take a step back and give our spending an honest appraisal, most of us will realise that we are a bit more frivolous than we should be. By taking a few steps such as those outlined above you can reign in your spending and start to put a little bit away each month. It will be small at first, but if you stick to the goals you wrote down, you should find that achieving them is a lot less daunting than you first thought.