When you buy a house, you need to pay an initial deposit. The more you put down, the more options are available to you. Our friends at MoneyAware give us their tips on the best ways to save for your deposit.
Saving up for a house deposit can feel like a daunting process, but with some smart saving and savvy budgeting, you could turn your dream into a reality.
How much do I actually need to save for a deposit?
A typical deposit can range from 5% to 20% of the full house price, depending on whereabouts in the country you’re buying and what the current lending rates are.
For example, if you wanted to buy a house for £250,000, you’d need to save at least £12,500 (that’s 5%) for a deposit before a lender would consider you for a mortgage.
If you put down that 5%, you could look at getting a 95% mortgage. But to be in with a chance of getting a more favourable mortgage rate, a 10% deposit might be better. That would mean putting down £25,000.
That’s a lot of cash, so the sooner you start saving, the more options you’ll have.
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How to boss your budget
The first step to better savings is knowing how much you can regularly put away each week or month. Creating a budget will help you spot where you can make cutbacks.
It’ll also give you a consistent plan to stick to while you’re setting money aside for your deposit.
Firstly, gather details of all your regular spending. This includes:
Your household bills
Clothing and shoes
Leisure and hobbies
Any insurance policies you have
Travel and car expenses
Any unsecured debt repayments, such as a loan or credit card
Once you’ve added together your monthly income and taken away your outgoings, you’ll have a better idea of how much ‘spare’ income you’ve got to work with.
Don’t forget to budget for any one-off expenses that might crop up later, like a car MOT or home repairs!
Become a smarter spender
Now that you’ve mastered the art of budgeting, you’ll spot the best ways to cut back on spending so you can start to put more away for your deposit. It’s also worth taking a look at any ‘luxuries’ you spend out on regularly.
If you cut down on them – or cut them out altogether – you could save yourself a packet. For instance, that £2 coffee you have every morning on the way to work? That could cost you around £520 a year!
Wean yourself off that expensive morning java by:
Making your own coffee at home and taking it to work in a travel mug
Ordering your coffee a ‘cup size down’, so you still get your coffee hit but for less money
Picking one day a week as your ‘coffee treat day’, such as a Monday (when you probably need it most!)
Little habits can add up to big costs, and ultimately would look much better sitting in your dream house fund.
It’s not just about saving either. Cutting out or cutting down on regular, frivolous spends could help with your mortgage application too, as lenders look at both your credit history and your spending habits.
Having a good credit history will put lenders at ease, and bank statements without those guilty pleasures may also work in your favour.
Where to stash your savings
A good old regular savings account will do the trick to keep your savings safe, and they tend to have slightly higher interest rates than current accounts.
You’ll need to put in a certain amount each month to benefit from the fixed interest, but simply having a separate savings account is a great start. Why not set up a standing order or direct debit with your fixed amount to make sure you keep up momentum?
It’s also a good idea to consider how you can make your savings work harder. You’ll want to see your money grow while you’re making the effort to stash it away.
Cash ISAs can help you save up to £20,000 per year. Any interest you earn in a cash ISA is tax-free too, so you can reach your goal a little bit quicker.
If you’re a first-time buyer, the government introduced a Help to Buy ISA to help those getting on the ladder boost their savings by 25%.
So, if you save £200 a month into the ISA, the government will give you an extra £50 a month. You’ll need to save at least £1,600 to get the minimum bonus of £400, and you can get up to £3,000 from the government.
It’s available from a range of banks and building societies, but bear in mind that you won’t receive the government bonus until you’re in the process of buying your first home.
Top tips to stay motivated
Saving can be really simple if you keep thinking about it and checking into your accounts. Once you’ve got a budget set up, and you’ve factored in potential changes to your income or outgoings, you’ll find it much easier to stick to it.
Keep looking back at your budget and spotting where you can challenge yourself to make more savings, and spend some time researching better deals elsewhere. That goes for your saving account too – don’t be afraid to switch.
Another way to keep your eye on the prize is to turn dull spreadsheets into something more visual, like a timeline or a colour chart, or even a bullet journal to track your journey from home-planner to home-owner.
Ready to take the next step? Let’s go house hunting!
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