With house prices increasing each year but the average salary not growing to match, those looking to get on the property ladder can find themselves facing a steep uphill climb to afford a deposit.
There are programs available to help people with lower deposits become homeowners, and lots of advice out there to help you maximise your savings.
So how to save for a house deposit efficiently?
How much deposit you need will depend on the value of the property you want to buy. On average, most first-time buyers need a 20% deposit, so for a house valued at £100,000, that’s a hefty £20,000.
For many, this figure seems unsurmountable, but there are ways you can save enough, either by yourself or with help.
Not every mortgage will require a 20% deposit. You can find some available with lower deposits of 10% or 15%, which can be more manageable.
Just remember that a lower deposit means you are likely to spend more in interest over the length of the mortgage and it is likely to have a higher interest rate.
ISA stands for Individual Savings Account and there are four main types:
The most common one is the cash ISA and the benefit of these types of accounts is that you don’t pay tax on your savings. You also don’t get taxed on the money you take out.
ISAs are a great choice for when you want to focus on saving and don’t want to touch the money you put in until you reach your goal.
You can save using a regular savings account if that’s what you prefer. The best advice is to shop around to find the best interest rates to make the most of what you can save.
Once you have worked out exactly how much you need to save and what timeframe you want, you can work out how much per month you will need to save in order to reach your goal.
One of the best tips is to set up standing orders and direct debits for your out-goings. If you set these to occur as soon as you get paid, you will know how much money you have left for the rest of the month.
Try and get your bills to come out on the same day, and by using a standing order for your savings, you can ensure a set amount is saved each month.
You may need to cut back on certain things in order to reach your target amount. You can use a savings calculator to plan out each month’s savings while still leaving yourself enough spending money.
While budgeting is going to be your most productive tool when it comes to saving for a deposit, there are a few other things you can do to top it up.
Selling unwanted items
Have a rummage and get rid of anything you don’t want to take to your new home, once you buy it! DVDs, CDs, books, clothes, furniture - anything you don’t want can be sold via online selling sites like eBay, or offline through a car boot.
Whatever you make from the sales, put it straight into your savings.
Extra work
This isn’t an option for everyone, but if you are able to do a few more hours at your current job, or have the time to take on some freelance work - now is the time to do it.
Save birthday or Christmas money
It’s tempting to treat yourself with gifts of money for special occasions, but if you put it straight towards your deposit, you’ll find the reward long term is much greater.
Even if you follow all of the saving advice in the world, sometimes it just isn’t possible to save up everything you need.
In these circumstances, there are still options available to get you on the property ladder.
Buying with relatives or friends
This is not for everyone, and comes with a lot of risk, but more and more people are choosing to buy homes with siblings or friends in order to afford the deposit costs.
There are mortgage providers that offer group mortgages specially tailored to those looking to buy in this way. It can be a great solution for some, but remember to read everything very carefully before you sign on the dotted line.
Some banks also offer options for family members to pay the initial deposit on your behalf, which they can get back after a set amount of years. They will depend on your paying your mortgage off regularly though, and may have to wait longer if you don’t pay on time.
Shared ownership
If you have some deposit saved but not enough, then you can look at Shared ownership.
These schemes allow you to buy a share of a property (usually between 25% and 75%) and pay rent on the rest.
However, getting a mortgage on a shared ownership property can be difficult, and when it comes to selling, it can get complicated.
Help to buy
The Help to Buy Scheme has been set up to help first-time buyers buy a new build property via an equity loan.
There are certain criteria you need to meet, and the value of the house you can buy will vary depending where you want to live. For most, you will be able to borrow 20% of the purchase price for the deposit (this is 40% in London) and this is interest-free for five years.
If you would like help or advice regarding saving for a deposit, contact Argyle Estate Agents for confidential and professional advice.
Looking for help regarding saving for a deposit?
Contact Argyle Estate Agents for confidential and professional advice.
