Saving for a mortgage explained

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Paying rent in Ireland can be expensive and increasing costs of living can make it difficult to save enough for a deposit on a mortgage. But that shouldn’t dissuade you. On this page, you’ll find out how you can save for a mortgage deposit and what types of mortgage savings accounts might be right for you and if you qualify for government-backed schemes that help you save for a mortgage.

It was welcome news in May for Irish savers looking to take out a mortgage and those coming to the end of a fixed rate - interest rates charged on new mortgages in Ireland fell during May, according to new data released by the Central Bank. The average rate reduced by 0.7 points to 4.17% during the month, which is the lowest level it has been at since August 2023 (though still 0.33% higher than it was in May 2022.) Ireland still had the joint sixth highest mortgage interest rate in the eurozone that month.

In the next few months, approximately 70,000 mortgage holders will be coming to the end of low fixed rates to be faced with a very different rate environment. However, experts suggest the market is pricing in potential rate cuts of up to 1.5% by the ECB in 2024, with the first of these cuts flowing through to tracker mortgage holders over the coming months. Others think that this could be optimistic and predict just a 1% reduction from June to the end of the year.

How much you need to save for a mortgage depends on your mortgage deposit amount, the value of the property and what type of property you want to buy, which can be affected by location, size and whether the property is new or established.

You’ll typically need to save at least 10% of the purchase price for a deposit, although you may have to put down a 20% deposit.

This means that if you want to purchase a €300,000 property at a 10% deposit, you would need to save at least €30,000. The remaining €270,000 would be the value of your mortgage.

It’s worth considering that the higher the percentage of your mortgage you pay as a deposit, the more likely it is that you’ll find a more flexible mortgage lender and be able to get a mortgage on a higher value property.

Once you know the type and cost of the property you want to buy, you can work out roughly how much you’ll need to save for a deposit. Starting to save for a deposit might seem like an insurmountable challenge, but there are things you can do that could help straight away.

1. Reduce your outgoing bills
2. Cut down on your everyday expenses
3. Consider using a savings or budgeting app
4. Assess your current living situation

Let’s look at each of those mortgage saving tips in a little more detail:

Think of all the bills you are currently paying. Are there any that you could reduce or eliminate? Perhaps you could shop around for cheaper mobile phone and broadband packages, lower your energy consumption or switch your energy bills to cheaper tariffs. You could also cancel non-essential services such as TV and music streaming apps, gym or club memberships and any other subscriptions that aren’t a necessity.

Cutting down on minor lifestyle expenses can have a major impact in the long run. Check your bank statements and look for things that aren’t a necessity. If you often eat out or buy takeaway coffee, it might be worth considering eating at home or brewing your caffeine shot at home or in the office. A €3 cup of coffee may not sound like much, but if you buy two a week, that’s €312 over a year. Identifying seemingly small expenses can have a significant impact on your overall savings.

There are several apps available that can help you funnel away spare cash and build your deposit. Some apps can help you make the right choices and show you clear calculations of how much you’ll save by cutting unnecessary expenses.

If you’re renting, you can potentially save a lot of money by changing your living situation. Many people consider moving back in with their parents when saving for a mortgage to keep their monthly rent and bills to a minimum. This will help you grow your mortgage deposit a lot faster.

If you live alone, you could consider moving to a cheaper area or house-sharing.

Savings accounts can help you get into the habit of putting money aside regularly to build your mortgage deposit. Comparing the best savings accounts for mortgages will help you find the most competitive interest rates and the right savings accounts for your needs. If you have savings already, you might consider lump sum savings accounts, such as fixed term deposits, both of which typically provide higher interest rates than standard savings accounts.

If you’re looking for a savings account that earns a competitive fixed rate of interest, a fixed term deposit account might be a better option. You can lock a lump sum of money away for a set time, typically between six months and five years, confident of a guaranteed return as you’ll earn the same interest rate from the day you open the account until the end of your fixed term.

If you’re saving for a mortgage deposit, you may feel tempted to invest your money in the stock market rather than saving it in a traditional savings account, but this can be very risky and is also more suitable for long-term financial goals.

With any investment there is always the risk of losing your money, and to have that happen while you’re saving for a house could be a major setback. Once you own a house, you may also have the opportunity to consider whether you should pay off a mortgage early or grow your savings instead, but you should always carefully consider all the risks, pros and cons.

Having enough savings behind you is the best way to prepare for getting a mortgage, but there are other things you can do simultaneously to help you secure the mortgage you want.

Mortgage lenders will want to see that you have a regular income and proof of long term employment. It also helps if you have a good credit history. While you are saving, you can look for ways to start improving your credit score, such as by paying off debt and ensuring you make your monthly credit card or loan payments before the due date.

For more tips, read our article on how to save money.

If you want a savings account that will help you save for a mortgage, you can quickly and easily open savings accounts with attractive rates from a range of banks by registering for a Raisin Bank Account. It’s completely free.