The best way to save for a house

1. Find a way to stop renting
2. Move to a smaller property
3. Look for support with your deposit
4. Start saving
5. Review your savings account regularly

1. Decide on your budget

Before you do anything, you’ll need to decide what your budget is for your house purchase, and there are a couple of ways to approach this. You may want to start from how much you want or can afford to pay in mortgage repayments each month, and use a mortgage affordability calculator like this one from the Money Advice Service.

You can then work out what house price you can afford and choose from there.  Or, perhaps you know what type of house you want to buy, and your budget will be determined by the cost of that house, even if it means saving longer to put down a bigger deposit.

Once you’ve set your price range, you need to decide how big a deposit you want – or need – to put down to be able to buy the house you want. Typically, mortgage providers ask you to put up at least 10% of the house price as a deposit.

Once you know how much you’re able to set aside each month, divide your deposit goal by your monthly savings to work out how long in months it will realistically take you to save your deposit. Remember to divide by 12 to get the length of time in years!

For example, a house that’s on the market for £200,000 will usually require a deposit of around £20,000 (plus the cost of legal fees, stamp duty and removal fees). Putting away £200 a month means it will take 100 months, or 8 years and 4 months to save up the deposit you need.

It helps if you can buy with someone else. If there are two of you saving £200 a month each, then you could save £24,000 in five years – more than enough for a deposit and the fees on a property on the market for £200,000.

2. Stop renting

We know this is easier said than done and for many it just isn’t an option. Rent tends to be the biggest cost everyone has each month, so if you can find somewhere cheaper or free to live,  this can save you a lot of money. This then means that you can increase your monthly savings, and amass the funds for your deposit more quickly.

Who can you move in with to save money for a house deposit?

If you choose to move out of your rented home while you save to buy, it’s important that who you go to live with understands that buying a house isn’t always a quick process and you could be living with them for a while. You also want to be better off than when you were renting, otherwise it isn’t worth doing. So you need to make sure that any money they need for “rent” and contributions towards bills leaves you with enough money to start saving.. Here are a few options to consider:

 

• Parents – Your Mum and Dad may not be able to give you the cash for your deposit, but they can still help you save in other ways. Speak to them about moving in with them while you save, perhaps offering a small amount towards the bills or to cover your keep by helping around the house.
• Friends – Do you have a good friend who has a room you can move into, or who you could rent with? This could be a lot cheaper than renting on your own and might help them out.
• Family – If your parents don’t have space, you could ask siblings or grandparents if they have a spare room to set up in while you put some money away for that deposit.

 

Become a house sitter

Another idea is to look into temporary lodging. People will pay for house sitters and if you plan things right, you could have a place to stay while you save – without a penny to pay in rent or bills.

You can find houses to stay in all over the world, and while you’ll need to ensure they are kept secure and well maintained – perhaps with a pet or two to care for – it’s definitely worth considering. There are plenty of sites out there to check out, such as Mind My House and Trusted Housesitters (although there is a fee to join this service).

3. If you must rent, downsize

If you’re not able to move in with anyone to save money, look instead at downsizing your property and moving into a smaller house or flat. This should mean you’ll pay less rent and potentially less on your bills – as it won’t cost as much to run and heat. The beauty of renting means you can move once your contract is up, so wait for the next renewal date and look for a smaller property.

Of course, bear in mind that moving home, even between rental properties, does come with some costs of its own. But, the upside definitely outweighs the downside as after a few months of paying lower rent, you’ll have recouped your moving costs and then some, allowing you to save more towards your goal of buying your house.

Remember to factor in that you’ll need to pay another deposit before you receive your current one back, and a  month’s rent up front. So, you may need to find this money first before you can do anything.

4. Look to see where you can get support

There are a range of schemes out there that can help to boost your savings or accelerate the house-buying process if you meet certain eligibility criteria.  

Help to Buy ISA

When you start putting money away, look into setting up a Help to Buy ISA. This kind of account offers excellent interest and when you’re ready to buy your house the government will top up your savings by 25% – up to a maximum of £3,000. It comes with some rules, though: the first contribution you make to the account must be £1,200, and then you will need to commit to paying in £200 a month from there.

Plus, the money you put into the Help to Buy ISA has to be used towards buying a house to be able to access the government’s top up. You can access the additional 25% from the government once your savings hit £1,600. When you’re ready to buy a house, your conveyancer will apply for the extra top up on your behalf at the appropriate time in the process.

Help to Buy Equity Loan

The Help to Buy loan can help you get on the property ladder, with the Government covering up to 20% of your house price as a deposit. You will need to pay this back but the first five years are interest-free.

This option is mainly used when purchasing new build properties and in most cases, you will need to provide a 5% deposit and have been approved for a 75% mortgage to be eligible. For many, it’s offered them the opportunity to buy a home that best suits their needs, which they can live in for years to come.

Shared ownership

A shared ownership scheme allows you to buy a percentage of the property and rent the rest. It’s a great way to get on the property ladder, as it allows you to buy more of the property as time goes on and you can find more savings. This process is called ‘staircasing’. To qualify, you must have an income of less than £80,000 as a household and have no credit issues.

Key Worker Housing Eligibility

If you have worked in a certain industry such as the NHS, the police or for the Ministry of Defence then, if you’ve worked there for more than five years, and have more than five years left before you’re due to retire, then you may qualify for a Keyworker mortgage or a rent to buy scheme. These are managed by your local authority or housing association and have their own set of criteria you must adhere to. You can find out more here.

Starter Homes Scheme

This scheme hasn’t started yet, but you can register your interest. The idea is that new build developments will offer properties available to buy with a 20% discount – making the deposit required smaller. You can find out more about the Starter Homes scheme here.

5. Budget carefully and save, save, save

Once you’ve decided your route, looked into schemes and know how much you can afford to save and later spend on your property, it’s time to save. Set up your Help to Buy ISA or look into savings accounts offering higher than average interest rates to transfer money into regularly – plan to move your savings at the start of the month as part of your regular budget.

How to save a deposit for a house quickly

You may be itching to buy and saving money takes time – but there are ways to speed up the process a little.

• Look for a high-interest savings account – Higher interest = higher return, so depending on the account you could have a comfortable amount deposited into your account each year.
• Cut back to free up money for savings – Cancelling non-essential subscriptions like gym membership, taking a packed lunch to work and hunting down cheaper options are just a couple of ways to free up money that can then be put towards your savings.

Find another source of income – A part-time job, a side business selling crafts or artwork you create or even selling unwanted clothes or un-needed items around the home can all add  towards your deposit saving pot.

Can’t I just take out a loan for a deposit?

No, loans cannot be used to fund a house deposit. You will be asked to confirm where you obtained the money for your deposit and it must be from a non-repayable source such as savings or given as a gift.

What if I have bad credit?

This can make obtaining a mortgage more difficult and so you may need to do some work beforehand to improve your credit score, or be prepared to pay a larger deposit.