Saving for a deposit for your first home is tough. It’s one of the biggest financial hurdles many people have to deal with, especially with rising home prices and living costs.
At London Stays, we work with thousands of renters wanting to own a home and again hear this question: how to save for a deposit when everything is so expensive?
The good news is that you don’t have to live like a monk and give up everything. Buying your first home could be more achievable than you think with a little savvy, a few adjustments, and some helpful schemes offered by the government.
Here is what you need to know!
Step 1: Set a Realistic Target for Saving
First things first: how much do you actually need?
Find out more about house prices in the regions where you want to live. If you can afford some flexibility, you might be surprised how moving just a little further out of a major city will have a major influence on what you can afford.
In general, you’ll want to save roughly 10% of the purchase price of the home. So for a home priced at £200,000, your target deposit should be some £20,000.
Once you have that number, stage it into monthly sums. You’ll be amazed at how much setting up a standing order to move money straight into a separate savings account the day you get paid will help you — out of sight, out of mind!
Step 2: Cut Down Expenses in Rent
For those serious about saving, reducing rent would probably get some of the quickest wins.
Could you suck it up and move back home (we know; not ideal but powerful)? Could you rent a room in a shared house or flat instead of renting solo?
Rent is probably your biggest monthly outgoing. Cutting that bill could free several hundred pounds each month into your deposit fund.
Step 3: Open a Lifetime ISA
By opening a Lifetime ISA, you will smartly improve your savings: the government adds a 25% bonus to it yearly- that’s a free £1,000 if you save £4,000 a year.
You must be aged 18 to 39 in order to open a Lifetime ISA and the first home must cost no more than £450,000.
MoneyHelper.com is a resource for understanding Lifetime ISAs).
Should you not make the cut for a Lifetime ISA, secure a high-interest ISA or a regular savings account that will actually help your money grow “that” much faster than just keeping it in a basic current account.
Step 4: Keep a Tight Rein on Daily Spending
- We aren’t saying live like a monk or a gerbil, but do keep an eye on small luxury things over a few months, which can start to build up.
- Try not to go out on the town so much anymore. Try to organize picnics or look for free stuff around town.
- Stop wasting money on the gym, and do your workouts off YouTube for free.
- Don’t just impulsively buy another piece of clothing with that £50; it might put another dent in your deposit for a house.
Step 5: Ask the Bank of Mum and Dad
It has been becoming increasingly common for first-time buyers of homes today to have family assistance when it comes to meeting their deposit.
According to the Mortgage Advice Bureau, parents are now the ninth-largest mortgage lenders in the UK.
If your family can help, it is best to early on decide whether it is a gift or a loan. Put everything down in writing to prevent any misunderstanding in the future.
Step 6: Use a Budgeting App
There is an app for just about everything these days, including saving for your deposit.
Apps like Moneybox, Monzo and Starling help you track spending, set savings goals and ’round up’ purchases so that the spare change goes into your deposit without your even knowing.
Schedule a transaction to transfer funds into your savings account monthly for a sound strategy to avoid temptations and sustain self-discipline.
Step 7: Government Schemes To Purchase
The government has many different schemes to assist first-time buyers, such as
- Shared Ownership: Buy part of a property while renting the other half.
- First Homes: Take a discount designed for first-time buyers and key workers.
- The Mortgage Guarantee Scheme: Assists buyers to get a mortgage for as little as a 5% deposit.
All these schemes come with their own sets of benefits and disadvantages; hence it’s best to undertake thorough research or have a talk with a mortgage advisor.
( You can see the schemes in more detail on the official GOV.UK page for buying schemes).
Step 8: Go for 100% Mortgages and Guarantor Loans
Though 100% mortgages are rarely available these days, some lenders offer family guarantor mortgages in which a parent or relative acts as a sort of security for the loan.
This allows you to buy without a deposit and comes with its grave responsibility.
Your guarantor’s savings or home may be at stake if you default on repayments.
Seek independent legal advice before ever entering into a guarantor agreement.
Conclusion
Saving for your first home is no easy task, but it is definitely possible when you have a defined plan, are committed, and have a few smart strategies in mind.
It is a marathon, not a sprint, to homeownership. Setting specific goals, using savings vehicles like a Lifetime ISA, cutting wasteful spending wherever possible, and looking into assistance from family or the government will all help inch you closer each month to your very own dream property.
At London Stays, we believe in bridging the gap between renting and buying. Whether you are planning a future or are ready to start viewing, the first step in achieving your dream house is learning how to save for a deposit.
Ready to start your journey towards homeownership? Find your ideal rental property with London Stays and take your first saving step!
