How to Save for a House Deposit
Searching for your first home is an exciting step, and a big milestone in life – but saving for your deposit can be daunting, especially if you’re starting from scratch. Having a clear plan is important, so we’ve put together this guide on how to save for a house deposit. While raising the funds you need to reserve your dream home can be daunting, our tips for saving for a house deposit will hopefully make the process a little smoother.
In this guide:
- Calculating your house deposit
- Average house deposits
- How to save for a deposit
- Help to Buy schemes
- Tips for saving for a house deposit
Calculating your deposit
While you’ll need to factor in other costs, saving for a deposit is by far the largest cost in buying your first home. Usually, your deposit will need to cover at least 5% of the total cost of the property, and your mortgage covers the remaining percentage. Your mortgage will be offered by a bank or building society, who will look at your earnings and circumstances to offer you a mortgage. Generally speaking, the less you earn, the smaller a mortgage you’ll be offered, so you might need a larger deposit.
How much will you need to save?
The first step in saving for your house deposit is working out a rough idea of how much you’ll need to save for a deposit. To do this, start looking for houses – use sites like Right Move and Zoopla to get an idea of the kind of houses that are available in the area where you want to live, and the rough price ranges houses you like. Doing this over a few weeks or months will help to give you a good gauge of what you can afford, and the areas that you can afford. It can be helpful to make notes of areas and neighbourhoods that you like and keep a rough list of average prices, so you can go to local estate agents and get their expertise on what’s realistic for the area.
Knowing what you’re looking for in a house will help you save for a house deposit, as it will allow you to set your expectations. For instance, if you have your heart set on a house with a large garden, your deposit might have to be a little bit higher – so you might need to plan on saving for longer until you have the full deposit.
Average house deposits
According to Bankrate, the average first time buyer deposit for a house in the UK is 15%. That can obviously vary based on where you’re buying, and how much you earn – as long as you can prove your mortgage affordability, lots of banks offer mortgages on a 10% deposit.
The average house price in the UK as of August 2020 is £256,000. With a 10% deposit, that means you’d need to save £25,600. However, bear in mind that this is the UK average – which will include some very expensive properties. For reference, the average house price in London is £485,000, but in Leeds it’s just £175,000.
Don’t be discouraged by high average house prices. There are plenty of places where you can get more for your money, especially if you’re looking further north. For example, County Durham is one of the cheapest places to buy in the UK, with average house prices around the £60,000 mark. Even if you live and work in a city, there are still bargains to be found, especially if you buy in an up-and-coming area or on the outskirts.
How to save for a house deposit
The next step is saving – and it’s important to create a plan as you start saving, as regular saving is more effective than big, one-off lump sums.
The two factors you need to take into consideration are time and cost. It sounds obvious, but the less you save for a house deposit each month, the longer it will take – and the longer you take, the more you may be able to save.
Decide where you’re going to save your deposit – for example, LISAs (which we’ll cover in the next section) are designed for you to use when saving for a house deposit – but if you’re concerned about your money being tied up and inaccessible, you can open a savings account that’s separate to any other savings, such as for holidays or birthdays.
How to save for a deposit while renting
Saving for a deposit while renting can be hard. You already have a significant fixed outgoing each month, so saving a significant amount each month on top of that can be difficult. If you’re renting, you might need to plan for a longer-term plan, and expect to be renting for a few years before you can afford a house.
For example, if you were hoping to buy a house in two year’s time, and you’ve calculated your deposit will need to be around £12,000, you’d need to save £500 a month. If that’s unrealistic on your salary and with your rent, you might need to add an extra year onto that total so you can securely save enough each month.
Help to Buy schemes
Unfortunately, the Government Help to Buy ISA scheme has recently ended – but there are still options available to help first time buyers saving for a deposit.
Lifetime ISA
You can use a Lifetime ISA (Individual Savings Account), or LISA, to save for a house deposit on your first home as long you’re over 18 and under 40 years old. You can put in up to £4,000 each year until you’re 50, and the government will add a 25% bonus to your savings, up to a maximum of £1,000 each year.
A LISA differs from other savings accounts in that you can only withdraw funds for free if you’re buying your first home, or aged 60 or over. Otherwise, you’ll pay withdrawal fees if you take money out of the LISA for any other reason – currently that charge is 20-25% of the total. You can find out more at the Government’s official LISA page.
Help to Buy equity loan
If you have a 5% deposit but you’re struggling for a higher deposit, you could apply for a Help to Buy loan. You can get a low-interest loan to give up to 20% towards your saving for a house deposit if the house meets certain criteria. The home you buy must:
- Be a new build home
- Not cost more than £600,000
- Not be rented or sub-let out once you buy it
- Be the only house you own
As always, make sure you’re careful not to overextend yourself when applying for loans, and look at your incomings and outgoings to make sure you can cover repayments along with your mortgage payments. Find out more about Help to Buy loans at the Government’s official help page.
Shared Ownership
Shared ownership is a government scheme, offering an alternative way to purchase a home. Shared Ownership can be a lot easier for buyers who are struggling to save for a house deposit, and can’t afford to buy a house upfront. Find out all of the pros and cons in our helpful Shared Ownership guide.
Tips for saving for a house deposit
Saving for a house deposit can be a long process, especially if you’re not getting assistance from the Bank of Mum and Dad. Here are some of our top tips on how to save for a house deposit.
Save on your bills by shopping around
You could make significant savings by using comparison sites to find a better deal on your energy bills, as long as your landlord will let you.
Cancel unused subscriptions
If you’re saving for a deposit, it’s time to be a bit more brutal with your outgoings. Take a good hard look at any subscriptions you pay for – if you haven’t visited the gym in months, cancel your membership. If you’re paying for more than one TV streaming service, considering sacrificing one or more of them.
Cut down on everyday spending
The cliché goes that millennials could buy a house if they weren’t busy spending all of their money on overpriced coffee and avocado toast. That’s almost certainly not the case, but it is worth looking at your outgoings to see where you could make a saving. It’s never easy to say no, but cutting your nights out to once a month or switching date nights to a romantic night in might save you more than you expect across the year, and help you to save for a deposit sooner.
By following our top tips for saving for a house deposit, we hope that the path to owning your first home feels a little bit clearer, and that saving a deposit for a house will be a little bit easier for you. Don’t forget, if you’re lucky enough to be in a position to inherit property, you can sell your house quickly for cash with Good Move and skip saving for a deposit, and find your dream home even faster. For more buying guides and home tips, check out the the Good Move blog.
