How to save for a deposit
Homeownership in the UK has fallen to the lowest level in 25 years thanks in no small part to the ever rising deposits required to get a mortgage. House prices are around eight times the average salary and banks are demanding hefty deposits. So how exactly do you go about raising that elusive 20%?
Before you start to save for a deposit, make sure you know how much you can afford and therefore how much you need to save. Not sure where to start? Don’t worry see our guide How much can I afford?
It’s not a quick win and it involves sacrifice. But setting a budget and sticking to it is still one of the best ways to make sure you’re not spending more than you earn and identify possible savings. Take the time to sit down and work out where your money is going. Where can you cut back? Prioritise what you really can’t do without and what you may be able to sacrifice for 6 months. How much would this save you? Look at your insurance policies and utility bills and use comparison websites to see if you can get them cheaper.
Make your savings work
Savings rates are at miserly lows so scour the market for the best deals and take advantage of ISAs if you can.
- Use up all of your ISA allowance so you have some tax-free savings. You may want to take advantage of the government Help to Buy ISA or Lifetime ISA
- Fixed rate saving accounts tend to have better rates than quick access. If you think you can do without touching some or all of your savings lock them away for a few years to get the best rates.
Reduce your rent
We all know the Catch-22: you can’t save for your own place because all your money goes into renting. If you want to break this cycle, chances are you’re going to have to compromise. Just 6-12 months of not renting and living on a budget could make a huge difference to your deposit. Here are some options:
Move back with Mum and Dad
While this won’t be a practical option for everyone, if your parents have the space, you get along and they are happy to have you then you’re really just throwing money away not staying with them for a short time. Before you do move in though, sit down and discuss what financial contribution you will make, how long you’ll stay and any other ground rules they may have.
Move in with friends
Perhaps you have a friend in a similar situation with a spare room. Why don’t you move in and halve both your rents?
Getting a room in a shared house rather than renting on your own will be cheaper and give you the chance to save up. These houses can be very sociable, but can also try your patience. For one of our members, the best house share she ever did included a cleaner. Everyone split the bills and it meant the bathroom, kitchen and shared areas were always sparkly clean. No more weekends cleaning and because the costs were split they were still able to save.
Get a Lodger
If you have a spare room yourself then this is a great way of cutting your rent. You will want to check with your landlord that this is acceptable. There are a number of websites that you can use to advertise your spare room.
Borrow from the bank of Mum and Dad
More and more people are relying on help from their parents to raise a deposit. And there are also options for those parents who want to help but don’t want to hand over their savings. For example, some lenders may take into account parents taking out an additional charge over their own property. We’ve teamed up with fee-free mortgage broker, London & Country, who can give you details of specific current deals.
Keep an eye out for new mortgage products
The mortgage market is constantly changing so make sure you regularly check what’s out there. With lending restrictions much tighter than a few years ago lenders have had to become more innovative with their products to get viable customers through the door. From mates mortgages to 100% mortgages (with help from a wealthy relative) there are plenty of options. Click here to speak to London & Country for fee-free advice on the right deal for you.
Consider getting help from the government
Over the last few years the government has launched (and re-launched) several schemes aimed at helping people buy a home. The Help to Buy allows you to buy with just a 5% deposit as does the First Buy scheme. Home Buy offers the opportunity to buy a share in a new build property and pay subsidised rent on the rest. To find out more about these and other government schemes check out our guide on how the government can help you buy a home.
Ready to start looking at mortgages? We’ve partnered with the award winning L&C mortgage brokers. They’ll search the market to find you the best deal and won’t charge you a penny for their expert advice. Find a mortgage online or speak to an advisors seven days a week. Get in touch today
- The HOA Step-By-Step Guide to Buying a Home
- Mortgages made simple
- How much can I afford?
- How to improve your credit rating before getting a mortgage
- How the government can help you buy a home. An overview of schemes
- Help To Buy ISA vs Lifetime ISA
- The legal side of buying a home explained
- How do I know I’m not paying too much?
- 10 Truths of Household Budget Planning
- The Bank of Mum and Dad – how to help your child buy a home
- What is Build to Rent?