This guide addresses ways to save for a deposit. There are ways to reduce the deposit amount, but they are not addressed here.
If you’re looking for an intro to deposits, look here
If you’re keen to understand the costs of buying a house, look here
Step 1: Any windfalls?
"The Bank of Mum and Dad" is more popular than ever. Whether money is given or lent, it can make a huge difference.
If your parents can't afford to give you cash, they can pass on their 'property wealth' by downsizing or releasing some of their equity.
Inheritance is often put toward a mortgage: if this is an option, consider saving it to boost your deposit funds.
Many buyers won’t have these options. Fear not: there are plenty of other ways to save.
Step 2: Existing savings?
Put them toward your mortgage, if so. Unless they're set aside for something very specific.
This could be a savings account you’ve been squirrelling money away in, premium bonds you were given as a kid, or even the jar of coins under your bed.
When it comes to saving for a deposit, incorporate money from as many sources as possible.
Step 3: Save effectively
Regular, monthly savings are better than occasional lump sums. Firstly, they're easier to plan around. Secondly, you can update your lifestyle accordingly if you have the same amount of outgoings each month.
It's hard to get good interest rates on savings nowadays, but these will help:
- Short term: get an account with cash 'locked in' to trade slightly higher interest rates for less frequent access to your cash.
- Medium term: look at an ISA for tax free savings, or fixed rate bonds
Money Saving Expert have a great guide to saving.
Step 4: Budget, and stick to it
Knowing what you need to save to get the deposit you want is helpful. If you need £15,000 and want to buy a house in 2 years, that's £625 monthly savings.
Knowing your income and outgoings, and figuring out the maximum amount you can spend to hit your savings goal, will help.
Step 5: Look for places to cut costs
Jot down all your outgoings. Be ruthless: include all necessities and all luxuries. Then look for places to save.
Can you get a cheaper phone contract? Dropping from £40 to £20 means less data, but frees up £240 per year.
Can you cycle to work? If you spend £5 a day on public transport and work 215 days a year (about the average number of work days, minus holiday and a couple of sick days), you could save ~£1075 a year.
Switch off lights and heating when you're not using them. This means small but noticeable savings on your bills.
Can you move back in with your parents, or someone else? If you're lucky enough to have this option you can really speed up the process by saving all/some of rent costs.
If that's not an option, can you downsize? Rent will be lower in smaller room or less affluent neighbourhood; perhaps smaller digs than you're used to will be worth the savings boost.
Mortgages are expensive and it’s not as easy to make your money work hard while you save. But ultimately, it’s up to you to be diligent when saving for a mortgage. Follow these tips and you will do it.