Saving up for a house deposit is one of the first steps to becoming a homeowner. Unfortunately, it can be a lot easier said than done. However, if you have a realistic and well-thought-out plan, you can make your first step onto the property ladder a reality.
Whether you live with your parents and want to maximise your earnings, or you’re renting and need to cut your expenses, we’ve created a list of the top ways that you can get your finances in order.
How much deposit do you need to save to buy a house?
When buying a property, your deposit will be the biggest lump sum of money that you’ll need to save. It usually works out as 5-15% of the total cost of the property, which will then need to be paid upfront.
To afford the rest, most people borrow the money by taking out a mortgage. Then, they pay their mortgage provider the loaned amount back over a set period of time through monthly repayments.
Saving up for a larger deposit will make your mortgage smaller, which can reduce the cost of your monthly repayments and lower your interest rates.
If you earn less and have a lower-income job, lenders will most likely offer you a smaller mortgage. In this situation, it can be beneficial to offer to pay off more at the start as you could appear as less of a risk to lend to from your mortgage provider. This increases your chances of getting your loan approved; you may also be more likely to receive a competitive mortgage, and a better deal from your provider.
The amount that you decide to save for your deposit will also depend on property prices in your area. To get the best mortgage with the best rates, rather than searching for the cheapest price, it’s best to speak with a local mortgage advisor in your area. They can get to know your circumstances and help you find the best deal for you.
Once you’ve wrapped your head around the nuances of the deposit and loan process, it’s time to get saving. Here are our 11 tips on how to save for a mortgage.
How to save for a mortgage deposit
The cost of buying a home might be the biggest investment that you make. While it may seem overwhelming, it’s achievable when you draw up a plan of action. We’ve compiled a list of ideas to help you save for your deposit:
1) Start saving now
Whatever investment sector you’re in, any good advisor will tell you that the best time to start saving is now.
Regardless of how big or small your deposit is, it’s sure to be a big sum of money that most people won’t have spare. It means that collecting the money is a long-term process that will require patience, planning, and discipline. That’s why it’s a good idea to start saving and growing your deposit as soon as you can. Even just £50 a month will begin to accumulate faster than you might think.
2) Set your goal amount
The journey of saving will feel more achievable once you set yourself a goal amount. Not only does it give you something to work towards, but you might also be able to work out how long it’ll take you to save for your deposit should you save the same amount or more each month.
When you’re setting your goal, it’s recommended to save 20% of the price of your property, plus a little bit extra. The best mortgage deal might not require the whole amount that you end up saving, but it’s helpful to have the extra buffer money just in case.
The extra can be used to cover the cost of other fees that you might incur during the process of buying your new home. These include:
- Stamp duty – A tax that buyers must pay on their property. However, this doesn’t apply to first-time buyers on the first £300,000 of their property if it costs £500,000 or less.
- Surveyors fees – The cost to get a property evaluated by a surveyor to check for any underlying problems.
- Legal fees – The cost to hire a solicitor to take care of the legal work.
- Valuation fees – The cost for your mortgage lender to value the property and check that it’s worth the amount that you’re applying to borrow.
- Mortgage arrangement fee – The cost for your mortgage provider to lend you a loan.
- Local authority search fee – The cost for your solicitor to assess your property’s area and look for any issues.
Other expenses that you may want to consider setting money aside for are:
- Removal costs – To cover any van hire or removal service fees for moving into your new home.
- Building insurance – It’s advisable to take out building insurance to protect you from the unexpected.
- Renovations – If you already have plans to renovate your new home, consider these in your overall goal amount.
- Maintenance – If your new property requires some work before you move in, it’s essential to factor these into your budget.
- 3) Reassess your current situation
The majority of first-time buyers will usually find themselves in one of two arrangements: living with parents or family members or renting temporary accommodation.
Those living with family often have a good deal and can save up more at a faster rate since family members may not ask for as much, if any, rent compared to actual landlords. If you’re lucky enough to live near your parents and your workplace, it could make sense to move back to the family home for a year when saving for your own property. It’s not everyone’s cup of tea, but it could be well worth it in the long run.
If you can’t get away with moving back in with your parents, it’s still possible to adjust your living situation to help you save.
Downsizing or moving in with other people is a big change, but finding a smaller place in a cheaper area could significantly reduce your monthly outgoings. Moving will have a knock-on effect, however. Check if extra commute costs or increasing council tax bands could actually outweigh any savings from rent.
4) Cut down on the cost of your bills
A less drastic option is to start making smaller changes to your monthly expenses. One of the most satisfying ways to do this is by switching your outgoing bills to cheaper providers.
- Energy – Use a price comparison site to explore cheaper energy tariffs in your area. However, this may not be possible for those renting with bills included. Also, most providers will have an early-exit fee for cutting your contract short; check that this doesn’t balance out the amount you’ll be saving.
- Council tax – If you live alone, are a student, provide care, or fall into other specific circumstances, you may qualify for a discount on your council tax.
- Mobile phone and broadband – Shop around for a cheaper mobile phone and broadband package. Price comparison sites will help you find the best deal, but again, you may be stung with exit fees. This is worth considering when your current contracts are up for renewal.
5) Reduce any unnecessary spending
To cut down your monthly outgoings even further, take a look at your expenses and see how you can reduce any unnecessary spending. Here are a few places to start:
Insurance
If you pay for contents, car, or pet insurance, make sure that you’re shopping around for the best price possible. To do this, use a price comparison site and double-check that you’re entering all your information correctly. Making sure all the relevant information is up-to-date can affect your premiums.
Subscriptions
Monthly subscriptions can add up, especially if you’re not making full use of them. Consider cancelling any TV and music streaming services, gym membership, magazine, and other subscriptions that you don’t use.
Small costs
Small, day-to-day costs like a cup of coffee, a taxi and new clothes can quickly accumulate. Here are a few other ideas for things you could do without to save up cash faster:
- Cigarettes – Yes, that old chestnut again, cigarettes. They’re bad for your health and your wallet. As inflation continues, the cost of a pack of cigarettes is getting higher and higher. Those who smoke more frequently can be puffing away hundreds ー if not thousands ー of pounds a year. Giving up cigarettes could take you much closer to your deposit goal.
- Sandwiches – You know the story. It’s a toss-up between getting up when your alarm goes off or having a couple of extra minutes to snooze. But if you get up later, there is less time to make your lunch before work. It’s ok though, you can always grab a sandwich or meal deal from the petrol station on the way in. This quick, convenient, and one-off purchase might seem like a small cost, but it can quickly accumulate if it becomes a daily habit.
- Meals out and takeaways – Treating yourself to a nice meal can be a well-deserved reward, but when it starts becoming a common recurrence, it might be time to reconsider how you can cut back. Just like purchasing lunch on-the-go, eating out or ordering in can be a hugely convenient option for those who don’t have the time to cook. Think about how you can make savvy changes to create meals ahead of time that eliminates the temptation to order food. Planning out your meals, preparing dishes in advance, and cooking in bulk are a few things you can try.
All these expenses can be put towards your deposit savings if you cut back or limit your spending.
6) Make money on what you do spend
No matter how savvy you are, spending is inevitable, but it’s not always a bad thing. You might be able to earn money on some of your purchases.
Loyalty cards often offer a free incentive or discounts after a certain number of purchases, so it’s worth enquiring about this in stores that you visit regularly.
And when you’re shopping, using a cashback credit card can give you a small percentage of what you spent back at the end of each month. Credit cards are also key to building up your credit score, which is crucial for applying for a mortgage. If you do use a cash back credit card, always shop responsibly and pay off your balance in full to avoid any interest charges.
Cashback sites are also a useful way to make some money back on big online purchases. Try to get into the habit of checking what the cashback rates are for stores before you shop. Generally, websites will offer a small percentage of cashback, but it can be a lot if you’re spending a significant amount in one go.
7) Ask for cash gifts
When it comes to occasions where you might be used to receiving presents, like birthdays and Christmas, start asking for cash gifts instead.
Use these opportunities to double your usual monthly savings, and make sure you transfer the money into your savings account to remove any temptation to spend it.
8) Use a budgeting app
Tracking your everyday spending in order to make changes is a great way to cut costs. Doing it by hand can be time-consuming, that’s why it can be helpful to use a budgeting app.
Digital banking apps like Monzo and Starling are free to set up and give you categorised spending insights so you can see exactly how much you’ve spent and on what. They also offer a feature that rounds up your purchases to the nearest pound and saves the difference in a saving pot.
9) Find a way to make some extra income
Finding a way to boost your income can help to supercharge your savings.
If you’re in a position to receive a raise or bonus at work, now is the time to follow up and make it a reality. Or, if you’re willing to go even further, are there new job opportunities that you can explore that offer higher salary prospects?
Another way to boost your income is by finding additional work in your spare time. From freelancing to selling any unwanted devices or clothes, consider what you can do to up your ingoings.
10) Set up a monthly standing order
If you want to save fast, the most efficient way is to actively put aside a decent amount on a regular basis.
Commit to a set lump each month and set up a standing order to a savings account. This will automatically save for you and you won’t have to worry about accidentally spending it. Setting the transaction up on the day that you get paid is an easy way to save as the money won’t be in your account long enough for you to be tempted to spend it.
11) Take advantage of government schemes
The government is encouraging lots of people to own a home and to help them out, they have set up schemes to make it easier for first-time buyers to get onto the property ladder.
Shared ownership – A scheme that lets first-time buyers purchase a share of a property and pay rent on the remaining share.
Equity loan – A scheme where the government loans buyers 20% of the price of a newly-built property. This means buyers will only need a 5% deposit and the 75% remaining will come from a mortgage.
Lifetime ISA – A tax-free savings account designed to help those saving for their first home or for retirement. Lifetime ISAs can be opened by anyone between the age of 18 to 40, and they have a £4,000 yearly savings allowance up to the age of 50. The government offers a 25% bonus on Lifetime ISA savings of up to £1,000 per year.
Start saving for your mortgage today
So whether you’re currently renting or living with family, there are plenty of ways that you can start saving for a mortgage. To make sure that your hard-earned savings don’t go to waste, it’s strongly recommended to use a mortgage advisor to help you find the best deal available to you.
Find a mortgage advisor near you with MyLocalMortgage.
