According to the Council of Mortgage Lenders, 4 out of 5 Brits want to own their own home. The need to stake out our own little corner of the country and claim it as our own is in our DNA.
However, not many of us have got the thousands in spare cash needed to put a deposit down on a starter home, often stranding us in the renting game.
What is a Deposit for a Home?
Unless you’ve recently won the lotto, you will need to borrow money in the form of a mortgage to buy a house.
However, lenders will not lend you the full amount. They want you to put a deposit down so you own a small percentage of those bricks outright. This is a deposit.
How Much Do I Need to Save Up?
The average deposit for first time buyers is calculated to be around 20% of the cost of the house. Your lender then loans you the remaining 80% (this is your mortgage).
So, if you are buying a house for £150,000, you will need to save up a £30,000 deposit. Gulp.
Depending on your circumstances (how much you earn, debts etc.), some lenders are prepared to accept 10% or even 5% deposits. But you must remember, a larger deposit means a better mortgage deal, lower repayments and a better chance at getting a mortgage in the first place.
The more you can save for a deposit, the better off you’ll be in the long run. To find out how much you need to save, have a look at house prices in the area on Zoopla or Rightmove.
Then make a list of your outgoings, incomings and current savings to see how much you can stretch to each month.
Lastly, use Money Saving Expert’s handy house deposit calculator to find out how much you will need to save.
Once you know how much you need for a deposit, check out our list of how to reach your goal below, and get one step closer to owning your first house.The more you can save for a deposit, the better off you’ll be in the long run. Click To Tweet
How to Save for a Deposit Fast
Shop around for a savings account with the best interest rate. If your current savings are languishing in a 0.1% account – move them.
Also consider getting a savings account which you can’t access easily, because these often command higher rates. Check out Money Saving Expert for the best savings accounts around.
2. Get a Lifetime ISA
The new Lifetime ISA (LISA) was launched a couple of weeks ago to great fanfare. It’s aimed at under 40s who are saving for their first home.
You save up to £4,000 a year and the state will then add an annual 25% bonus on top of whatever you have managed to save. This gives you a nice tax-free boost towards your deposit. Check out our handy guide on Lifetime ISA.
3. The Bank of Mum and Dad
Around 8 out of 10 British people under 30 have asked their parents for help with a deposit on a home.
If your parents are able to loan you some of the deposit, this can speed up the home-buying process. It can also be a cheap way to borrow if your oldies don’t charge you interest!
Make sure you show them how you are going to pay them back and don’t ask them if you don’t think they can afford it.
4. Help to Buy Schemes
There are three types of Government-backed Help to Buy schemes aimed at giving young people a leg-up onto the housing ladder:
- Help to Buy Equity Loan: The government can give you a very low interest loan for up to 20% of your deposit (40% in London), as long as the house is a new build. Find out if you are eligible here.
- Help to Buy ISA: If you’re saving to buy your first home, the government will top up your savings by 25% (up to £3,000) through a Help to Buy tax-free ISA. Find out if you’re eligible here.
- Help to Buy Shared Ownership: If you can’t afford the mortgage on 100% of a home, Help to Buy: Shared Ownership offers you the chance to buy a share of your home (between 25% and 75% of the home’s value) and pay rent on the remaining share. See more here.
5. Go for Joint Ownership
Do you have a close friend/flatmate/boyfriend who is also desperate to get on the housing ladder? Why not combine your savings and buy a house together?
This is a great way to instantly halve your deposit. But be VERY careful here, you have to be secure in your relationship with this person.
If you fall out – it could turn ugly. Make sure you plan carefully with the help of a solicitor before you jump in with another person.
6. When All Else Fails
If none of the above options are available to you then you may need to just roll up your sleeves reduce your expenses and get saving on your own. Here are some ideas to help you save more in short time:
- Slash your rent: If you are currently renting on your own, consider moving into a house share until you reach your deposit goal. Or ask your landlord if you can sub-let any spare rooms. This can halve your rental costs.
- Give up luxuries: Cutting out shop-bought lunches and coffees, gym memberships and other unnecessary spending can all add to your Dream Home Savings Pot. Have a look at our Money Saving Challenge which gives you some great tips on what to give up and save all year round!
- Move somewhere cheaper: Ok, you might have your heart set on a trendy area full of loaded hipsters and yummy mummies. But if you move to a slightly less desirable area, you may be able to buy a house quicker, with less of a deposit. Be open-minded about where you want to live and you could reach that goal in half the time. Less desirable could be ‘up-and-coming’ in a few months, which can make you a tidy profit in the long run.
Over to You!
Are you currently saving for a deposit on a house? Or have you finally reached your goal? Share your tips with us!
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