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Saving for a house deposit is a difficult task and sometimes it can seem like a never-ending challenge. However, according to the Council of Mortgage Lenders, 4 out of 5 people in England would prefer to purchase a home rather than rent. Unfortunately, to purchase your first home a deposit is a necessary requirement, with larger savings helping to secure the best mortgage deals and lowest interest rates.
Whether you are looking to find answers to common questions such as ‘how much to save for a deposit on a house’ or ‘how to save for a house deposit in a year’, our useful guide will provide the information you need. There are many ways to save for a house deposit and we hope these tips help you turn your dream home into a quick reality.
Before you begin saving money for a house deposit, you should consider the options available to you. For example, it is estimated that 79% of buyers under 30 are helped by their parents to purchase their first home. It may be possible for parents to provide a cash gift or an informal loan, although formal arrangements such as acting as a guarantor are also a possibility.
Another option is saving up for a house deposit with friends or family and purchasing a home together. If you are wondering how to save a house deposit in 6 months, this route may be a great option, but it is worth considering the implications if one of you chooses to sell in the future.
If you prefer to purchase without the help of friends or family, a shared ownership home could be a great option. If you have a combined household income of less than £80,000, you may be eligible to purchase a percentage of a home and rent the remainder. These are offered through your local council or housing association and will reduce how much you need to be saving for a house deposit.
When you are saving for a house deposit government schemes can be a great help. There are a variety of help to buy schemes, which reduce the lump sum you need to save to purchase a new build property. They are designed for first-time buyers and you usually only need to save money for a 5% deposit. The developer or government then lend you the rest, up to a maximum of 20%. The loan is free for 5 years, but you will need to pay an annual fee after this point.
The easiest way to save for a house deposit is to create a savings plan, which starts with how much you need to save every month. If you are wondering how to start saving for a house deposit, calculating the amount you need and how long this will take is the first step. Whether you are wondering how to save 100K for a house deposit or how to save in a year, an effective plan will help.
Saving regularly each month is more effective than saving sporadic lump sums, it will also help you feel closer to your end goal. The time it will take to save for a deposit will depend on how much you can comfortably afford to save each month. We advise that you are realistic in your plan, as overstretching yourself financially could leave you struggling if unexpected expenses crop up.
For example, if you are looking to buy your first home in three years and need a deposit of £20,000, you need to be saving roughly £555.56 every month. If this is not affordable and you can only save £277.78 per month, saving for a deposit on a house will take 6 years. Although this may seem like a long time, saving what you can afford is better than giving up on your goals of homeownership.
Once you have calculated how much you need to save, setting up a regular payment to transfer the amount into a savings account each month is a great idea. There are a variety of instant access savings accounts on the market, but there are also savings accounts dedicated to those who are saving for a house deposit UK wide.
You may already have heard about an ISA to save for a house deposit, these are usually known as Help to Buy ISAs and Lifetime ISAs and can be an ideal option for a house deposit savings account. Each year you can take advantage of an annual cash ISA allowance which will ensure you do not pay unnecessary tax. The amount you save will then be topped up by 25% from the government when you are ready to purchase a home.
1) Become a house sitter
If you can move from house to house easily, becoming a house sitter could be an excellent way to eliminate the cost of renting. For example, the website Trusted Housesitters places people in homes while the owners are away. This could mean housesitting for a couple of nights or even months, drastically reducing your usual accommodation bills.
2) Reduce your rent
Rent prices across the country are rising, so if you can find a way to reduce yours it will drastically help towards your savings goal. If you don’t need your spacious three-bedroom house, consider whether you could cope with a two-bedroom apartment. Or, maybe you could even search for a house share? It is also becoming quite popular for people to move back to the family home. Although it may not be ideal, the short-term living situation will bring you closer to your aim of stepping on to the property ladder.
3) Pay off your credit cards
If you are wondering how to save a deposit for a house quickly, you also need to factor in outstanding debts. If you have credit card debt the mortgage you can borrow will be reduced. If possible, it is best that this is paid and brought under control. It might mean cutting back, taking a second job or finding a local car boot to sell your old unused stuff, but you will soon be able to save more when you don’t need to pay credit card payments each month.
4) Eliminate unnecessary bills
When you are in the process of saving for a mortgage deposit, eliminating unnecessary bills will make it easier. For example, could you reduce the cost of your mobile phone contract, cancel your gym membership or start walking to work? You don’t need to drastically change your lifestyle, but if there are small changes you can make it can lead to larger savings. Simply cancelling your gym membership could save you more than £500 each year.
5) Take time to meal plan
Most of us know those daily takeaway coffees and lunches out at work are unnecessary, but without a meal plan in place, it can be hard to avoid the convenient options. There are some great ways to reduce the cost of your food bill, from taking your own packed lunch to batch cooking meals for the freezer. By writing a meal plan and sticking to your budget, it may be possible to halve your usual food bill.
Should I pay off debt or save for a house deposit?
Although you are likely to be searching for the quickest way to save a house deposit, in many situations it may be sensible to pay off outstanding debt first. If you are paying high-interest payments for loans, overdrafts or credit cards, it will make sense to repay these first. It may be possible to secure a debt consolidation loan, with a lower rate of interest. This could mean that you repay less but over a longer period.
What are the best savings accounts to save for a house deposit?
One of the most important factors you will need to consider is where to save money for your house deposit. The best savings account for a house deposit are those which offer the highest rates of interest. There are a variety of government house deposit saving schemes available, including ISAs for saving for a house deposit. Both the Help to Buy ISA and Lifetime ISA will boost your savings by 25% when you are ready to purchase your first home.
How long does it take to save a house deposit?
The time it will take to save for your house deposit will depend on the price of the property and how much you are able to save each month. House prices vary drastically across the country, with average house prices in London much higher than those in the northeast. If you are looking to save a deposit and purchase quickly, it may not be possible in London, but in other areas of the country saving a deposit in just a year is not uncommon. If you would like to find average prices in your area, take a look at the government's land registry website.
How much should I save for a house deposit?
How much you should save for a house deposit will depend on the value of the home you are looking to purchase. In the past, it was possible to borrow 100% mortgages, which meant a deposit was not required. Today, the average first-time homebuyer saves a 20% deposit, which on a home of £100,000, would mean saving £20,000. Although, there are mortgage lenders which will provide 90% and even 95% mortgages, which could mean that you need to save less. However, a larger mortgage will mean that you need to repay more, possibly over a longer period.
How to save for a house deposit quickly?
The key to saving a house deposit quickly is budgeting, reducing your expenses and increasing your income. Take the time to ensure that you are signed up to the cheapest contracts available when arranging your insurance, utilities and phone bills, then cut any unnecessary monthly expenses. If you can, a second job can increase your income dramatically and will see your savings start to grow quickly.
Is there a saving for a house deposit calculator?
There are a variety of mortgage and house deposit calculators available online. The easiest and quickest will be available through your bank, as most offer quick online calculators. Simply provide details such as your income, how much you are looking for and the percentage you want to borrow.
Should I be saving for a house deposit while studying?
It is never too early to think about how to save money for a house deposit. For many people finishing university and renting a home is a common path, but it is possible to save money while studying to bring your dream of buying a house much closer. Instead of spending your student loan on endless nights out, takeaways and summer holidays, try and live within the means your student loan provides. It is usually very easy to find part-time jobs that fit around lectures, which will mean that you are able to start to save a house deposit. Look for the best interest rates and open a cash ISA, which you can pay any additional income into.
When you are ready to purchase a property, there will be other costs to consider. You will need to save your deposit, but you should also have the funds ready to cover costs such as:
1) Stamp duty – There is no charge for properties below £125,000 and if you are a first time buyer, you will be exempt from paying stamp duty on the first £300,000 on homes of up to £500,000. If you purchase a property of more than £300,000, you will be liable to pay stamp duty of 5% of the purchase property.
2) Valuation fee – The lender will conduct a valuation check to see how much the property you are purchasing is worth. The cost varies but you should budget for a charge of roughly £250.
3) Mortgage arrangement fee – This covers a lenders administration cost for arranging the mortgage, expect to pay roughly £1000.
4) Home survey – This is a thorough inspection of your property for your own benefit before you purchase the property. Depending on the type of survey you purchase, you can expect to pay between £400 and £700.
5) Conveyancing – You will need to pay your solicitor for the legal work involved in purchasing your property. This can range from £500 to £1500, although you are likely to be charged between £1000 and £1500 – you can see more on conveyancing costs here.
6) Land Registry fee - This is one of the cheapest charges you will face and will depend on the value of the property. A house valued between £100,001 and £200,000 has a lower fee than those between £200,001 and £500,000 – you can find how much the house you are looking to buy will cost here.
7) Costs of moving home – Unless you own a van, you should also consider the costs of a removal van. These can be competitively priced, but if you are moving a long distance this could cost much more.
There are a variety of options available, so it is advisable to search for the cheapest deal where possible.
If you are struggling to save for a house deposit, we hope you found some good tips in this article. Good luck saving for your perfect home. If you liked this article why not give it a share and help others out as well.