It can be quite challenging these days; saving for a house deposit. 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 to save for a house deposit – and much you’ll need for a deposit.
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.
How to save for a house deposit
Here are just some of the options available to you, when it comes to saving for a house deposit:
- Use government schemes
- Ask friends/family members for help
- Downsize your current property
- Rent somewhere cheaper
- Sublet your property
- Move back in with family
- Have a budget and stick to it
- Maximise your savings
- Switch energy bills
What is a house deposit?
A house 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. Time to get to grips with the full process of buying a house.
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 for a house deposit of 20% if possible.
How much should you save for a deposit for a house?
Saving for a higher house deposit has a number of benefits, including:
- Increasing your chances of getting a better mortgage deal
- More manageable interest rates
- More chance of getting accepted by a mortgage lender
- Could give you less to pay back across your loan term
If possible, try saving for a house deposit of either 10%, 15% or 20%.
Is a 10% deposit enough for a house? Let’s break it down
So, what does that look like in terms of saving for a house deposit? As of September 2022, the average house price in the UK sits at £294,559.
Let’s use this number as a guide. For this, you’d need to save:
- 10% deposit = £29,456
- 15% deposit = £44,184
- 20% deposit = £58,912
What is the fastest way to save for a house deposit?
Get help from the government with saving for a house deposit
The government can help you buy a house in a number of different ways. These include:
- The Help to Buy ISA
- The Help to Buy equity loan
- The Shared Ownership scheme (where you buy part of a property & rent the other part)
- The Right to Buy scheme
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.
Saving for a house deposit: 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 when saving for a house deposit
Downsizing often helps cut costs. These include:
- Heating bills
- Council tax payments
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 everything when saving for a house deposit
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 to achieve saving for a house deposit
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 for a house deposit
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.
Saving for a mortgage – setting a budget
Once you’ve weighed up your saving for a house deposit 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.
Last Updated: November 18th, 2022