Five Ways To Save For A House Deposit
Are you ready to start saving for your first home? From tips on budgeting to how to boost your savings, find out how you can build up a lump sum for your house deposit.
Saving for a house deposit can be a challenge for first-time buyers, but there are simple ways to build up a deposit for your home. You just need to plan your finances and have a little patience too.
From creating a budget you can stick to boosting your savings power, we share five top tips to help you save for your house deposit.
Set a savings goal
The first step to saving enough for a house deposit is to set a target. To do this, it’s important to work out how much deposit you’ll need for a mortgage.
Researching the types of property you would like to buy will give you an idea of how much you’ll need to save. Lenders usually ask for a deposit of 5% to 20% of the property value when you apply for a mortgage.
So if you wanted to buy a home worth £250,000, you would need to save one of the following amounts, depending on the percentage you plan to put down:
- 5% = £12,500
- 10% = £25,000
- 15% = £37,500
- 20% = £50,000
Saving a larger deposit of 20% or more could help you access a wider range of mortgage deals, some with lower interest. Although this could make your mortgage cheaper, it means that you may need to save up for longer, delaying how long it takes you to buy.
Depending on the property value and whether you are a first-time buyer, you may also need to set money aside for stamp duty too.
» COMPARE: First-time buyer mortgages
Create a realistic budget
Once you have a savings goal in mind, you’ll need to create a realistic budget to reach it.
Your budget should include details about your:
- Income: Wages, bonuses or benefits you receive.
- Essential spending: Rent, household bills, travel expenses and food.
- Non-essential spending: Socialising, hobbies, holidaying, leisure activities.
- Debt: Any repayments for credit including loans, credit cards and overdrafts.
Budgeting is really important for helping you work out how much you can afford to save towards a house deposit each month. It is also great for identifying where you can adjust your spending to help you save more.
There are lots of budgeting apps available that can help you manage your spending and saving. Some challenger banks also offer budgeting tools to help you manage your money.
Avoid setting unrealistic goals for your budget as this could leave you worse off than before, especially if you have to dip into your savings to cover your living costs.
Using the 50/30/20 rule can help you make an effective budget that you can stick to. With this rule, you would split your money in the following ways:
- 50% of your income goes to essentials, such as rent and bills,
- 30% of your income goes to your wants, such as socialising or hobbies,
- 20% of your income goes to your savings.
» MORE: How to budget money
Reduce your expenses
Reducing your spending can help you save money for a house deposit.
Start by looking at your non-essential expenses. Are there any areas where you could make adjustments? For example, finding cheaper activities when socialising with friends.
Try to find better deals for your remaining expenses. For instance, finding a cheaper gym membership or even trading it in for free home workouts. Cancelling unused subscriptions could also help boost your house deposit savings by hundreds of pounds a year.
Next, turn your attention to essential spending. Rent tends to be the largest expense in a budget, so finding ways to make it cheaper could help you save more. This can be done by finding a place with cheaper rent, moving into a house share or staying with family.
Switching to cheaper deals for household bills can also help you save more. Price comparison websites can help you shop around and look through hundreds of deals quickly. It’s also worth checking whether you’re eligible for a council tax discount or refund.
Trimming your food bill is another way to save money. Switching to cheaper brands could help you cut costs at the supermarket. And reducing your takeaways could unlock hundreds of pounds in savings too.
Increase your income
Finding ways to increase your income could help you put more towards a house deposit. For instance, researching and using retailers that offer cashback for planned purchases.
There are lots of other ways to make money online and offline, including:
- freelancing in your spare time
- selling preloved clothes
- trading in old phones and gadgets
- testing websites and apps
- taking part in surveys
Boost your savings
Using a Lifetime ISA could help you boost your house deposit savings.
Lifetime ISAs are designed to help people save for their first home, worth £450,000 or less, or to put away savings for their retirement. You can open a Lifetime ISA from the ages of 18 to 40 but can keep saving into the account until you reach 50.
You can save up to £4,000 a year into your Lifetime ISA, which can be in cash or stocks and shares, and the government will add a 25% bonus to your savings, which is capped at £1,000 a year.
Once you are 50, you won’t be able to add more savings or receive the yearly bonus, but your Lifetime ISA will continue to earn interest or a return on your investments.
You will be charged a penalty if you withdraw money from a Lifetime ISA for anything other than buying a house or retirement.
A Lifetime ISA will use up £4,000 of your annual ISA allowance of £20,000 (in the 2021/22 tax year), so you could also save into a traditional ISA or savings account, or use these accounts instead of a Lifetime ISA, but be sure to shop around for the best savings rates.
Where possible, it’s worth asking whether your family could help boost your savings with a gifted deposit. You could also increase your savings efforts using a joint mortgage and buying with a partner, friends or family.
Image source: Getty Images
Brean is a personal finance writer at NerdWallet. She covers a range of financial topics and has written for consumer titles including Which?, Moneywise and The Motley Fool. Read more