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Five Ways to save for your first house deposit

Five Ways to save for your first house deposit, fast

Buying a house is a huge step in anyone’s life but living in the UK, one thing’s for sure, it’s not cheap. In 2019, the average house price in the UK was £235,000. Most people pay for a property with a mortgage together with an initial deposit.

Saving for your first house deposit can be difficult without compromising on your day-to-day expenditure, especially if you’re already paying out for rent. But it can be done, and with mortgage rates becoming ever-competitive, as well as the government encouraging providers to lend to more people, there’s no better time than now to start saving.

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How much deposit do you need?

There is no one set amount for the ‘ideal’ deposit on a home purchase, but most mortgage providers recommend a deposit of around 20% of the total property price. However, deposits start from the 5% mark and technically can be as high as you can afford. This means you need a minimum deposit of £11,700 or £46,800 for the recommended 20% for the average home in the UK. The higher the deposit amount, the lower the ongoing mortgage interest rate, but mortgages are offered on an entirely bespoke basis depending on your personal circumstances; there’s no one-size-fits-all.

1. Decide on budget

The best way to decide on your budget is to ascertain what size of home you need and roughly which geographic area you’d like it to live in. Browsing similar properties should give you an approximate idea of how much you can expect to spend on the house purchase.  Just remember, the higher the property price, the higher the deposit; after all, you’ll be saving for longer.

Once you have a rough idea of how much your new home will cost you, calculating a deposit amount is easy. At this point, you may find it helpful to use online mortgage calculators from banks or building societies to work out approximately how much deposit they’d require; not all lenders start with 5% deposits and not all prefer large deposits. You can use online mortgage calculators from most lenders without entering personal details or undergoing credit checks, so it won’t affect your personal credit profile moving forward.

There are also fees to pay on top of an initial deposit, including an arrangement fee, valuation and administration costs, and potential legal fees if the purchase looks complicated. Such extra expenses vary hugely but to be on the safe side. Most conveyancers recommend setting aside up to an additional £5,000 to cover these.

2. Stop spending money on rent

The property market fluctuates and with it, so does mortgage rates and rental prices. Where we’ve seen the mortgage marketplace lower rates and become more competitive over recent years, unfortunately for those privately renting, fluctuations haven’t been so kind.

Of course, the coronavirus pandemic has had a huge impact on the economy and the property market has been far from unaffected. However, where homeowners have seen mortgages become more affordable as providers look to reap more profits and the government has encouraged lower deposit rates, those renting have struggled with less choice, higher deposits and increasing monthly rents. A monthly mortgage payment is considered an investment. However, a private rent lines the pockets of someone else. It’s no surprise, therefore, that renting is often referred to as dead money.

With several areas of the country now experiencing a property scene where monthly mortgage payments are cheaper than the rent for their home equivalent, if you’re able to stop renting to save, you definitely should. The money saved can immediately be put aside to build up a deposit for a full property purchase. As it’s likely to be your biggest monthly expenditure, it should add up fast.

3. If you must rent, downsize

Moving into free accommodation rather than privately renting isn’t an option for everyone, but saving money to put toward a house deposit can be done, even when a large monthly outgoing binds you. If you’re able to, consider downsizing. Unused spare rooms maybe just an unnecessary expense you can remove from your monthly spending. If you’re already in as small a property as you can be, consider if it is cheaper to live in an area or property with fewer amenities.

Maximise your income opportunities while renting

Most tenancy agreements forbid sub-letting, but if yours doesn’t, or your landlord is flexible, consider renting out any spare bedrooms, either short or long-term, or looking into holiday lets on sites such as Airbnb. If you don’t fancy having someone else in your living space, consider using spare rooms for storage for others; at a fee, of course. Parking spaces can often be rented out, and there are several websites facilitating bookings while charging just a nominal amount for admin.

Cut down on your monthly expenses

While you are renting, there are other techniques you can try to reduce your monthly outgoings and put that money into savings to fund a house deposit. Comparison tools can be used to find cheaper energy providers to lower energy bills, and contracts around cable TV can often be lowered with negotiation. Consider switching to a budget supermarket for your weekly shop, cancelling any unnecessary subscriptions, keeping a spend/no-spend tracker for each day to keep expenditure down, and holding yourself accountable.

4. Look to see where you can get support

Dependent on your circumstances, it may be you’re eligible to receive some extra funding or support as you embark on your quest to buy a house. Some schemes, such as Right-to-Buy, allow individuals to take out a 100% mortgage without any deposit. The Right-to-Buy scheme is for those who live in council properties and allows them to purchase their home at a significant discount after a set time period; if they’re able to afford it. Similarly, Right-to-Acquire is a scheme for those renting homes from housing associations. The discount available through Right-to-Acquire tends to be smaller than through Right-to-Buy, but it is still consequential.

Stamp Duty savings

In 2020, a Stamp Duty Holiday was introduced in the UK to encourage home purchases. This means that Stamp Duty (a tax incurred on properties worth over a certain amount) has been suspended on homes valued under £500,000 until 30th June 2021. Until 30th September 2021, Stamp Duty is only payable on properties over £250,000 and, after that, over £125,000. On large property purchases, not paying Stamp Duty could save up to £15,000 – a large amount that could really bolster your deposit savings!

Loan To Value 

In March 2021, the UK government announced a new 95% LTV (Loan-To-Value) scheme. This, too, is aimed at nurturing property purchase; in this case, specifically for first-time buyers. More lenders will offer 95% mortgages to buy only to present a 5% deposit. It’s expected that these larger LTV mortgages will be offered from April 2021 and will open up the property market for many for the first time.

Maximise your savings

ISAs and specific savings accounts for home deposits are available, but their eligibility and ‘perks’ vary. These are available through individual banks and building societies, and government schemes. The most recent was the Help-to-Buy ISAs, which boosted expenditure on savings up to £3,000, and can be claimed until 2030. Due to the COVID-19 crisis, the next like-for-like scheme has yet to be announced, but undoubtedly there will be something similar in the future.

5. Budget carefully and save, save, save

Although the tabloids may have you believe that the only way to save for a house deposit is to cut out takeaway coffees and inherit a fortune, it is possible with careful day-to-day budgeting. Apps like Plum skim off random affordable amounts from your bank account and stash them away periodically to build up a savings account. Similar schemes are offering round-ups to the nearest pound on purchases. ‘Plug-in’ type savings initiatives allow you to save small amounts with a barely noticeable impact on your bottom line.

Set a budget

Budgeting everyday expenditure needn’t be too comprehensive and if you’ve not done it before, simply mapping out your expenses to give yourself full visibility can make you feel more accountable. Think twice before spending, cut out online spending (tricky but impactful during lockdown restriction periods) and keep a tracker on your outgoings every day. Some people find that aiming to have a no-spend week or fortnight is beneficial, but be mindful if you do aim to do this, you don’t simply store up all your spending and do it all at once as soon as you’ve ticked off the days.

Compare savings accounts

What’s key to saving for a lump sum is to move the money out of your usual bank account so that it can’t be – either accidentally or purposely – spent. Where to move the money depends on your own circumstances and preferences. The provider of your existing current account should offer a separate account for savings. Still, they may stipulate a minimum amount to pay in either to open the account or monthly. If you can’t find something suitable with your existing bank or building society, consult a comparison or consumer champion website to find the most competitive savings account and set up online banking to move across your savings easily and without delay.

Cut back on expenses

If you’re unsure of what you can cut back on to reduce daily or routine expenses, start by going through a bank statement for a month and discover what you consider ‘normal’ in terms of spend. Add up the amounts into different categories and decide what could be either reduced or eliminated. You may be surprised by how quickly small spends can add up, and cutting back on just a few of them can make a huge difference. For example, a single pizza takeaway can easily cost £30, but you could have a week’s worth of pizzas at home for the same price. Why not replace one of your takeaways with a ‘fakeaway’ and move the money saved into your other account?

Your questions, answered

try contacting an IFA (Independent Financial Advisor) for specialist support and advice. IFAs usually charge a fee and often work on a commission basis, so you won’t be liable to pay them for anything unless you receive a full product or service from them. Similarly, specialist mortgage advisors will guide you to better understand how much money you need for a deposit and what kind of mortgage rates you can expect to receive based on your circumstances. What’s always best is that you make informed decisions toward your finances.