How To Save For a House Deposit
It’s a question asked over and over again by those dreaming of owning their first home, ‘how do I save for a house deposit’?
It seems impossible right? Especially if you live in a large city such as London or Manchester where the price of simply existing, let alone adding to your savings account, seems to increase daily. If you are truly committed to buying a house however, it is possible to take definitive action right now to begin your journey, or at least put you on the right path. Let’s take a look…
Deposits Explained - How Much Money Do I Need For a House Deposit?
There isn’t an exact amount you need in order to make a deposit on a house, but we can talk in terms of averages. In recent years, first time buyers have typically used a 20% deposit to buy a house. Of course the amount of your deposit will depend on how much the house you are looking to buy costs.
If your house is going to cost £200,000, you would pay:
- A deposit of £40,000 if you take out an 80% mortgage, with a deposit of 20%
- A deposit of £20,000 if you take out a 90% mortgage, with a deposit of 10%
- And so on...
The number of mortgages on the market for buyers with small deposits are on the rise - with 95% mortgages now in existence, meaning you would only pay a deposit of 5% (£5,000 in the above example).
Unfortunately 100% mortgages, where you don’t need any deposit, are virtually non-existent these days unless you have additional financial help from your family. Increasingly, the older generations are helping the younger generations onto the housing ladder. Read our article - How To Help Your Children Buy A Home.
In addition, there are a number of schemes that can help first time buyers jump on the housing ladder, such as Help to Buy and New Build, government schemes to help people with smaller deposits buy a house.
Mortgages Explained - Why a Bigger Deposit Might be Better
All this being said, it is always better to secure your home purchase with a bigger deposit. Why? It’s all about your mortgage.
A basic principle to keep in mind is that the bigger the deposit you have, the cheaper the mortgage deals you will be able to get. This is because the more money you have to put towards a house, the less of a risk you pose to a lender.
So it’s probably time to get saving, seriously!
Saving Tips - How To Save For A House Deposit
You will be surprised how quickly saving on the littlest things can really add up. Some of our favourite savings tips include:
- Limit your eating out and bring meals and snacks to work daily.
While it is tempting for us all to head to Pret for breakfast, lunch and snacks during the week, inflated takeaway prices quickly add up. Do a big grocery shop on the weekend and bring a packed lunch instead. We’ll leave it up to you as to whether you’re hardcore enough to give up the morning Starbucks or Costa run - but remember, even the pennies do count in the end!
- Cancel subscriptions.
Eight quid a month for Netflix or Spotify or whatever it may be might not seem like much but when you combine that cost with all your other monthly bills and spending, it really is. Why not challenge yourself to a reading challenge instead, using the library or second-hand book stores?
- Eating out is one thing, but what is usually the most expensive thing on the bill?
Yep, we all know it, it’s the booze (inserts crying face). Giving up alcohol for a while (or at least reducing your intake) will not only benefit your mind and body but your bank account too.
- There are a number of ways to save and even make money whilst buying groceries and other essentials.
Clipping coupons is one - coupons can be picked up from numerous places including free in store magazines, online or I have seen them alongside my grocery receipts. Cashback is another great option. Cashback sites such as Topcashback and Quidco offer a percentage of your purchase back when shopping. Phone apps such as Shopmium or Checkoutsmart offer cash back on your in store purchases.
- Take a step back and create a budget
Creating a budget will open your eyes to what money you have available and where it’s going.
For more money-saving tips, read our article How One Young Mum Went From Debt Holder To Home Owner
Location, Location, Location
Living in London may seem like the dream, but if you’re struggling to save for your first house deposit, it may not be the most realistic of all options.
Why not consider a commuter town or other part of the UK where housing is much more affordable (and hence your deposit will be less)?
Read our articles…
- Top London Commuter Towns
- Top 10 Places To Live Outside Of London
- This Is The Best Place To Live In The UK
I Want To Buy A House - What Next?
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Content correct at time of publication.