The average UK homeowner puts down a 15% deposit on their first property although the minimum deposit for a house in the UK is usually 5%.
1. Set a goal and stick to itThe first thing to do when saving for a deposit is to set yourself a target.
If you’re wondering how much money you need, then online mortgage calculators are useful to broadly find out how much you can afford to spend on a house.
Once you have that figure you can work out your options for a deposit.
As a general rule of thumb, if you are able to save for a larger deposit, therefore lowering your mortgage LTV (loan to value) percentage, you’ll have access to lower interest rates from your mortgage provider.
Once you’ve worked out how much you need to save in total, it could be a good option to calculate a monthly target, based on what you can afford and how quickly you want to reach your goal.
Most banking apps have functions to assist with your savings goals or speak to your bank to set this up. Set up a standing order to transfer money to your savings on pay day – before you can spend it.
2. Analyse your finances
If your savings pot isn’t growing as rapidly as you would like, it may be time to give your incomings and outgoings a quick health check.
Look at how much is coming in and how much you are spending each month. If there isn’t much left over to save, you may want to look closely at whether you can cut down on your ‘non-essential’ expenditure.
When it comes to saving for a house there is no one size fits all approach – it’s dependent on your individual lifestyle but generally there will be areas you can cut back.
Can you take your lunch to work and cut out your daily take-away coffee? Do you really need all five of those streaming subscriptions? Can you start swishing your clothes instead of buying a new outfit every month? A few key changes to your consumer habits could really see your savings start to mount up.
There may be even bigger lifestyle changes you could make – can you move in with a friend or your parents while you save, or forego a holiday for a year or two?
Once you’ve started making changes and feel the satisfaction of seeing your savings pot grow, you may find you’re willing to modify your spending habits even further.
3. Can you maximise your income?
This may not be an option for everyone, but have you ever considered whether there are ways you could make a little extra cash in your spare time? According to a recent survey by 118 118 Money, almost 68% of employed UK adults have a side business to make additional money on top of their day job.
The researchers also investigated the most profitable ‘side hustles’ and those which came out on top were:
- Selling handmade candles
- Renting out
- Selling soft furnishings
4. Is there other help available?
For first time buyers of newly built homes the Government-backed Help to Buy Equity Loan scheme can provide a helping hand onto the property ladder, although there are regional price caps and you will still require a minimum 5% deposit. This scheme is available till October 31st 2022.
For those fortunate enough to have the option, the ‘bank of mum and dad’ is another way to help you take your first step on the property ladder. According to figures released in 2020, up to one in four purchases are now supported by family and friends - up from one in five in 2019. Other options include pooling your savings with a partner or friend to buy your first home together.
The Government’s Lifetime ISA (Individual Savings Account) scheme can also boost your savings if you put them towards buying your first home. If you’re under 40 you can save up to £4,000 each year, until you’re 50. The government will add a 25% bonus to your savings, up to a maximum of £1,000 per year. There is no charge to withdraw the funds if you are using them to buy your first home but other terms and conditions apply.
5. Don't give up
When you first start saving for a home it can seem like a daunting task. However, taking that first step of setting up a savings account is the start of a wonderfully exciting journey. Take a moment to remember the occasion and tell family and friends you’ve started saving – this will all help you to feel supported through the process, make you feel more accountable to yourself and ensure your loved ones understand you may be cutting back on expensive nights out or trips away.