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How to Save for a House Deposit

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Tempted by the sound of a good mortgage deal, with manageable monthly payments?

Let’s face it – this is the ideal scenario for anyone buying a house.

If you want the best mortgage agreement for your situation, in most cases, you’ll need a large sum of cash upfront. Here’s how much you’ll need for a deposit – and how to save for one.

How Much Could You Borrow?

How to save for a house deposit

Here are just some of the options available to you when it comes to saving for a deposit on a house:

  1. Use government schemes
  2. Ask friends/family members for help
  3. Downsize your current property
  4. Rent somewhere cheaper
  5. Sublet your property
  6. Move back in with family
  7. Have a budget and stick to it
  8. Maximise your savings
  9. Switch energy bills

What is a deposit?

Time to get to grips with the full process of buying a house. A deposit is a lump sum of money needed when buying a home. You’ll need to pay this upfront. Unless you’re a cash buyer, you’ll pay for the rest of the property with a mortgage. 

How much deposit do I need to buy a house?

So, what size deposit do you need for a house?

The deposit amount needed is between 5-20%. 

You’ll need a minimum of 5% of the property purchase price as a minimum deposit. This would mean you had a 95% LTV mortgage, enabling you to borrow 95% of the money needed to buy the property. LTV stands for ‘Loan to Value’.

However, with 95% LTV mortgages hard to come by at the moment, it’s recommended to save more. 

The impact of coronavirus on property has led to mortgage lenders pulling their ‘riskier’ loans, often only accepting those with a deposit of 10% or more. This has made it tougher for first time buyers – but not impossible. It’s recommended to save up to 20% if possible.

How much deposit for a mortgage?

Saving a higher deposit has a number of benefits, including:

  • Increasing your chances of getting a better mortgage deal
  • More manageable interest rates 
  • More chance of getting accepting
  • Could give you less to pay back across your loan term

If possible, try and save a 10%, 15% or 20% deposit.

Let’s break it down 

So, what does that look like? 

As of October 2020, the average house price in the UK sits at £245,443. Let’s use this number as a guide. 

For this, you’d need to save:

  1. 10% deposit =  £24,544
  2. 15% deposit = £36,816
  3. 20% deposit = £49,089

Of course, this average house price rises significantly in the capital,  currently sitting at £660,754. However, there are more affordable places for first-time buyers in London.

Saving for a house deposit – top tips

Get help from the government

The government can help you buy a house in a number of different ways. These include:

Each of these have their pros and cons, so you need to weigh up what works best for you. Some of them are schemes specifically designed to help first-time buyers only, while some of them are available to everyone.

But, there isn’t one answer for the best way to save money for a house, as this depends entirely on individual circumstances. So, government help might not be the solution for you. However, you have other options.

Ask family members for help

This option is usually a last resort for most buyers.

However, leveraging any support available to you is always a good idea. Your parents (or other family members) can help you save for your house deposit. Try not to rule out the bank of mum and dad straight away!

This financial support can come in more ways than one. For example, they can help you with a loan, where you agree to pay this back under relaxed circumstances. Double check if they will charge interest.

Alternatively, you can take a more formal route. They can speak to your mortgage lender about providing some of the deposit. Be warned, though, this makes them liable if you fall behind on payments.

If neither of these options apply, cash gifts are always welcome!

Find cheaper accommodation

Downsizing often helps cut costs. These include:

This is a great solution for those struggling to juggle paying rent and saving for a deposit at the same time.

Of course, this isn’t possible for everyone. But, it’s something worth thinking about for those finding it tough to become a homeowner.

Budget, budget, budget

Saving for a mortgage? Do yourself a favour – get budgeting!

Consider your outgoing spend vs. monthly income. After that, work out what you can afford to cut back on, such as any unnecessary luxuries.

Remember – even the smallest cutbacks can make a big difference, particularly if you’re planning to save over a few years.

This is one of the most effective tips, as it should help improve your chances of getting a mortgage!

Remember hidden costs

Another part of the budgeting process is to consider all easily forgotten costs. This includes stamp duty, or rising interest rates.

Don’t make the mistake of assuming your deposit is the only extra cost you need to prepare for.

Sublet your property

If your contract and landlord allow it, consider getting a lodger.

Subletting a room in your home can be a good way to put some extra cash in your pocket each month.

Become a live-in guardian

Live-in guardians occupy certain listed buildings, such as stately homes. It’s their responsibility to look after the property.

Why would anyone do this? It can be hugely helpful for those saving to buy a house, as you’re charged much cheaper (or sometimes even free) rent.

Move back in with family

Particularly if you live in a city like London, you might be paying sky-high living costs…

One solution? If any family members are happy to take you in on a short-term basis, you might be wise to take them up on the offer!

Many have found that, for them, this was the best way to save for a mortgage.

Maximise every penny of your savings

Are your savings in a lifetime ISA? An instant access savings account? Or, a regular savings account?

All accounts are different. Some will allow you more flexibility, while others will allow you to pay less tax. So, do your research to work out what’s best for you. Everyone’s circumstances are different, so there’s no hard and fast rule that determines which you should pick.

Wherever you decide to store your savings, ensure they’re helping you on your way to buying a property.

Switch energy bills

You might be overspending on your energy bills without realising! Comparing and switching energy providers could help you save money for a deposit.

Switch Energy Supplier

Saving for a mortgage – setting a budget

Once you’ve weighed up your options, it’s time to get the ball rolling.

At this stage, you might not know exactly how much to save to buy a house.

But, if you can work it out roughly, this will make the process much more manageable. Decide on the house price range you’re looking at to start with.

Bear in mind – the rule of thumb is usually the sooner you want to be a homeowner, the more you’re required to save each month for your mortgage deposit.

Climbing the property ladder can be a lengthy process, especially as your deposit needs to be a lump sum. However, with a plan in place, you’re getting closer to buying your first home.

It’s worth getting quotes from a mortgage lender. This will give you a good indication of how much you need to save up for a house.

Mortgage Quotes

Last Updated: October 26th, 2021

Phil Spencer

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