How to save for a house deposit

A common hurdle when it comes to homeownership is saving for a deposit. It can seem daunting when you’re faced with a large lump sum you need to save, but there are several things you can do to boost your funds and secure your first home.

That’s why we’ve created a guide filled with insights on the costs associated with buying, as well as plenty of actionable saving strategies you can implement. So, if you’ve been wondering how to save for a house deposit, this is the guide for you.

What costs are associated with buying a home?

There are various expenses associated with buying a home, and here are a few of the most common:

• Product fees: covers the cost of setting up a mortgage deal with the lender.

• Valuation fees: when a lender values a property to confirm a fair asking price.

• Survey fees: a property surveyor will check for any issues with the property.

• Conveyancer fees: a conveyancer handles legal documents, for instance managing your deposit.

• Stamp duty costs: this is a payment made to the government as a form of property tax. The amount paid varies depending on the price of the home.

And of course, there’s the actual deposit, which brings us onto our next point…

What is the deposit on a house?

Well, the deposit is the amount of money you’ll pay upfront towards the full price of the property. Then, monthly mortgage payments will cover the rest.

For instance, if you saved 10% of the property price, you’d have a 90% mortgage. And if you’re buying a property worth £200,000, this would be a £20,000 deposit. So, the more money you save for a deposit, the less you’ll need to borrow, and the less you’ll need to repay.

How much deposit do I need for a house?

The amount you’ll need to save for a deposit varies depending on multiple factors, for instance location, property type, as well as lending practices in the region.

Typically, deposits range from 5-20%. Over 10% is preferred by many lenders, and the average first-time buyer in the UK saves a 15% deposit. So, on a £240,000 home, this would be £34,500.

As mentioned, when saving for a house deposit, many choose to put down a larger payment (for instance 25%) to ensure their monthly repayments are lower. Or alternatively, there are schemes designed to help first-time buyers get on the property ladder whereby just a 5% deposit is required.

As a first-time buyer, the first step should be calculating what size mortgage you can afford based on your annual income, spending habits, and any other financial commitments. You’ll find various home deposit calculators online which are handy and simple to use.

The importance of setting SMART financial goals

When saving, many people choose to follow the SMART technique which we’ve outlined below:

• Specific goals: setting specific goals is important so that you have a clear understanding of what you’re hoping to accomplish. When goals are clearly defined, you’ll be much more motivated to achieve them!

• Measure progress: it’s important to measure and keep track of your progress. This is another way to motivate yourself to keep saving.

• Achievable: Take some time to carefully plan out what is going to be achievable in the long term. Setting unattainable goals can cause you to lose motivation.

• Realistic: making sure goals are realistic is similarly important, for instance plan for what you can comfortably put away each month.

• Timeline: setting a timeline is another way to boost motivation. Set milestones and keep the end goal in mind.

Actionable strategies to boost your savings

Now that you’ve got a picture of the costs associated with buying a home, it’s time to dive into how you can boost your savings. From budgeting to goal setting, here are our top tips on how to save for a house deposit:

1. Create a detailed budget

First things first, you’ll need to carefully analyse your current spending habits. There are plenty of handy budgeting apps out there which are great for expense tracking, or you could use the simple spreadsheet method.

Many choose to follow the 50-30-20 rule when it comes to budgeting; this involves allocating 50% to needs and essentials, 30% to lifestyle and wants, then 20% to savings. Of course this can be adjusted to your unique situation, but it’s a handy framework to bear in mind.

You should also regularly review your budget. For instance, one month you might be able to commit to saving more, whereas another an unexpected cost might pop up. Don’t worry if your savings journey isn’t linear, simply commit to remaining dedicated throughout.

For more on this topic, make sure to check out our guide on effective monthly budgeting tips.

2. Set clear goals

The amount you’ll be able to put away each month is dependent on factors such as your income, your outgoings, and any other financial commitments. So, after reviewing your budget, it’s time to set clear goals.

If you need to save £35,000 for a deposit for instance, you’d need to put away £300 each month for approximately just under five years.

To spur you on, make sure to dive into our guide: how much can I save in a year? This is bursting with practical advice as well as some valuable money-saving tips.

3. Generate new income streams

Many people turn to generating extra income streams to help them save. You could look into freelancing, babysitting, or even pet sitting to generate a side income.

Or, if you’re at the very start of your savings journey, you could look to get your pot started by selling any unwanted items. Have a huge clear out of any clothes, books, or electricals you no longer want, then get them listed on a site such as eBay.

Seeing a lump sum in your account can help motivate you to continue saving. And a decluttered home is great for when it’s finally time to pack up your belongings and move!

4. Reducing everyday expenses

If you’re wondering how to get a deposit for a house quickly, reducing your expenses should be a top priority.

Small changes can have a huge impact when it comes to building up your savings pot. For instance, perhaps you can cut back on dining out, then redirect the money saved towards your deposit pot? You could also consider switching phone or broadband providers to a cheaper contract.

We’ve got an in-depth guide on how to save money each month if you’re looking for more tips.

Different types of savings accounts

It’s not only how you save your money which is important, but also where you save it. You’ll want to open a savings account specifically dedicated to your deposit. A few common options include:

• Limited-access accounts: these usually have a higher interest rate than instant access accounts.

• Traditional, instant-access savings accounts: in a regular, traditional savings account, you can take out and pay in money as and when is needed.

• Lifetime ISAs: many choose to open a lifetime ISA to save for their first home. To do so, you must be over 18 and under 40, and you can put up to £4000 in each year until you are 50. The government will then add a 25% bonus to your savings (up to a maximum of £1000 a year).

First-time buyer programmes

If you’re struggling to save, the government offers schemes for first-time buyers such as the Mortgage Guarantee Scheme. This aims to help a new generation with home ownership by increasing the availability of 95% Loan-to-value mortgage products.

There are also options such as the First Homes Scheme, which helps first-time-buyers purchase property for 30-50% less than its market value.

Or, if you’ve been thinking about how to buy a house with no deposit, there are options such as Family Springboard Mortgages. This is where a family member or helper pays 10% of the value of the property, then in five years, their money will be returned (with interest) provided you’ve made all mortgage payments on time.

Saving for a house deposit requires time, dedication and real commitment, but the benefits of your hard work will be worth it when you’re settled in your new home. We’ve even got a money saving checklist for when moving day finally arrives, so make sure to check it out.

By making sure you understand the costs involved with home ownership, as well as equipping yourself with these top saving tips, you’ll be well on your way to hitting your goals in no time. Before you go and get saving, we’ll leave you with two final tips: 1. Start today, and 2. Stay committed!