If you want to own a home instead of renting one, you need to start making smart decisions as early as possible to ensure you save the funds you need for that all-important mortgage deposit. A great first step is researching the best mortgage savings accounts and finding a safe place to store your money and watch it grow.
Getting on the property ladder can be challenging, as you will typically need to put down 20% of the property’s value to secure a mortgage. That’s why you need a good savings account for a house, and by choosing the right one, you could have those keys in your hand much sooner than you imagined!
To find out which are the best mortgage savings accounts, keep reading. We’ve also included some top tips for saving for a house deposit, hopefully helping you speed up the process and reach your goals faster.
Which are the Best Mortgage Savings Accounts?
Think about where you want to live and what sort of house you would like to buy. Then do some research to find out how much your ideal property typically costs – you will likely need to save 20% of a property’s value to secure a mortgage.
Once you have an idea of how much you will need to save for a deposit, you will need to open a savings account to store your money before you buy.
Here are the most common types of savings account that you might come across:
Instant access savings account
These accounts are sometimes known as easy access savings accounts, and that’s because you can easily withdraw your money whenever you like. While this might sound ideal, you probably won’t need to access your savings for a while, or at least not until you put down a deposit – so do you need easy access to your funds?
Bear in mind that these accounts typically offer low interest rates and you may need to pay tax on any interest accrued.
Regular savings account
If you can commit to saving on a regular basis, this may be a good option for you. Regular savings accounts require you to deposit an amount per month, usually for a fixed term, to qualify for interest rates that are generally higher than you find elsewhere.
Notice savings account
Limited access accounts are among the best mortgage saving accounts for people looking to buy their first property, and notice savings accounts fit the bill.
If you’re happy to leave your money in your account and give notice when you want to withdraw it (up to 120 days), then this type of account is a great choice for you. Higher interest rates mean you’ll see your money grow faster and reach your goal much sooner.
Fixed-rate bonds
Accounts where you forgo access to your money for a fixed length of time in return for a higher interest rate are a great choice for those looking to take out a savings account for a house.
If you open up a fixed-rate bond, you are usually required to make a one-off deposit and leave the money in the account for one or two years. Your money will gain interest according to the fixed interest rate, which is usually higher the longer you leave your money.
Being able to enjoy fantastic interest rates with fixed-rate bonds comes with disadvantages. Say you lock your money into a two-year fixed-rate bond offering 1.5% interest, but after a few months, the bank starts offering a 2% interest rate. Having committed to a fixed-rate bond, you cannot move your money and take advantage of the better rate.
Another disadvantage is that you cannot deposit money and save regularly, so you need to decide whether this suits your goals.
Individual savings accounts (ISAs)
ISAs differ from the savings accounts we have mentioned so far, because you won’t need to pay tax on the interest you earn. If you choose an easy access ISA, you can withdraw your money whenever you like, but if you set up a fixed-rate ISA, you will enjoy higher interest rates in return for less access. The choice, ultimately, is yours.
The only disadvantage of an ISA is the personal ISA allowance, in other words, the limit on how much money you can deposit into your ISA accounts during one tax year. At the time of writing, the limit is £20,000.
Remember, it doesn’t matter if you have one ISA account or several; the limit applies to all of them in total. So if you have two ISA accounts and you save £10,000 in one, you can only save £10,000 in the other.
The Lifetime ISA
The Lifetime ISA is amongst the best savings accounts for mortgage deposits, but it is only offered by some banks. Similar to the Help to Buy ISA which was discontinued in 2019, the Lifetime ISA is a great way to save for a deposit or even for when you retire.
Here are some of the Lifetime ISA’s main features:
- You must be aged between 18 and 40 to open one
- You can save up to £4,000 per year until you are 50
- The government will boost your savings by 25% each year up to £1,000
- You can withdraw your savings if you are over 60, buying your first house or if you have a terminal illness
The Lifetime ISA could allow you to significantly boost your savings potential over a relatively short period of time. You could save over £20,000 in just four years with the Lifetime ISA, where you save the maximum allowance of £4,000 per year and the government gives you £4,000 as a bonus – and that’s before you’ve counted the interest given by the bank.
Tips for Saving for a House
Hopefully now you feel more clued up about which savings account will help you get on the property ladder, but there are lots of other ways to speed up your journey to becoming a homeowner.
- Create a spending budget to get a grip on your finances
- Set up a standing order to your saving account for a house
- Curb your spending (app subscriptions, takeaway coffees, buying clothes, etc.)
- Sell some unwanted belongings
- Start a side hustle (tutoring, babysitting, dog walking, freelancing, etc.)
