The Office for National Statistics has reported that the average housing prices in the UK have increased by 4.1% year on year. The average price for a house was £2,85,000, higher by £11,000 than last year.

First-time house buyers can’t afford to get on the property ladder due to the constant rise in housing prices. If you are planning to buy your first house, you should start saving money as soon as possible.

There are multiple debt and Mortgage options available in the market. It’s likely you’ll pay a handsome amount as a debt repayment or mortgage Deposit.

If you are low on savings then it may feel impossible to save for a house deposit. This guide will help you work out how much deposit you will need. And how to speed up your saving efforts.

How much do you need to save for a house deposit?

The amount you need to save for a house deposit can vary depending on several factors. This includes the purchase price of the property and the percentage required for a down payment. As well as any additional costs involved in the home-buying process.

Here are some key points to consider:

1. Deposit percentage:

The general guideline in the UK is to aim for a minimum deposit of 5% to 20% of the purchase price. It’s important to note that you may get a better mortgage deal if you pay a 20% mortgage deposit. Rather than paying a 10% deposit.

2. Help to buy schemes

The UK government offers Help to Buy schemes to assist first-time buyers. As well as existing homeowners looking to move. These schemes require a deposit of at least 5% of the property’s value. The government provides a loan or equity share to supplement your deposit.

3. Lender requirements

Lenders have specific criteria and affordability assessments that determine the minimum deposit. Some lenders may offer mortgage products with a 95% loan-to-value ratio. This means you would need a deposit of 5% of the property’s value. However, keep in mind that higher deposits can lead to more favourable interest rates and loan terms.

4. Property purchase price

The cost of the property you wish to buy plays a significant role in determining the deposit amount. For example, if you’re looking to purchase a property valued at £300,000 and aim for a 10% deposit, you would need to save £30,000.

5. Additional costs

In addition to the deposit, you should also consider other costs involved in the home-buying process. These may include solicitor fees, survey fees, stamp duty land tax (SDLT) for properties over a certain threshold and moving expenses. Factoring in these additional costs is essential when calculating your savings goal.

To get a more accurate estimate of the deposit you need to save, it is recommended to consult a mortgage provider or speak to a financial advisor who can provide personalized advice based on your financial situation and the specific property market in your desired location.

Now let’s understand how to save money to buy a house by using these simple tips.

How to save for a house deposit?

Home ownership requires a strategic approach to your finances. After setting your savings target, start taking actionable steps to save that amount by the end of 2023. By following a few key steps to saving Money, you’ll be on your way to buying your own place.

1. Keep your expenses in check

Look for ways to reduce your everyday spending. Track and review your expenses for a month and find gaps where money can be saved.

Divide your expenses into two categories- ‘needs’ and ‘wants’. This will give you an idea of how much you can save each month. If your living costs are getting in the way of your first property, consider downsizing your living arrangements to a shared house or finding a more affordable rental option.

Look for opportunities to save on utilities, groceries, transportation, and entertainment. Small changes, like cooking at home instead of eating out or using public transportation instead of owning a car, can help you reach your savings goal faster.

2. Save on rent

According to the Office of National Statistics, the average person in the UK is expected to spend 26% of their income on a median price rented home. Finding a way to reduce your rent can help you in increasing your monthly savings significantly.

Consider moving into a smaller place for a few months to save on rent. If you have an extra bedroom, then you can even look for a housemate and earn via rent.

3. Automate your savings

Use the ‘save first spend later’ tactic to ensure that you save consistently. Open a different savings account to store the money saved. You can set up a direct deposit to your new savings account to save for a deposit automatically.

This can be of great help to those who get fixed salaries and want to deposit savings directly into a separate account.

4. Establish an emergency fund

Before focusing solely on saving for a house, it’s essential to build an emergency fund. This can sit in a savings account. This fund should cover 3 to 6 months’ worth of living expenses. Having this safety net will protect you from unexpected financial setbacks and allow you to continue saving for your house without disruption.

How to save money for a house deposit on a low income?

Saving for a deposit can be a challenge for those earning a low income. However, with proper budgeting and financial planning, you can create a savings plan that will help you buy property.

1. Get a second source of income

If you’re not earning enough from your job or business, look for ways to create another income source. Think about your transferable skills like writing, digital marketing, accounting, or painting and how they can help you make more money.

You can also consider online tutoring, freelancing, or selling products.

2. Ask your family or family for help

It might not be easy to ask, but if you feel comfortable, you could ask your loved ones if they have extra money to help you. They may be able to loan you the amount at nominal interest rates or without interest rates.

However, make sure you have a plan to pay the money back eventually. Do read our guide on lending money to friends and family.

3. Reduce debt

Before saving money for a big purchase, always have a plan to pay off your debt early. Paying your debts like credit card bills, short term loans, cash loans, etc. early can save money on interest and give you a chance to save more money.

Focus on clearing your debts systematically, starting with the ones with the highest interest rates. Once you’ve paid off a debt, allocate the money that was going towards the monthly payments to your house savings.

4. Sell unwanted items

Start saving by decluttering your living space and selling items you no longer need. Online platforms or yard sales can provide an opportunity to turn unused belongings into extra cash for your house savings.

If you are spending money on things you don’t even require then here is our guide on how to stop spending money on unnecessary things. Do give it a read.

Where should you keep the money saved for house deposit?

Now that we’ve covered how you can save for a house deposit, it’s time to think about where you should keep the money saved. Here are some options.

Instant access savings account

Instant access savings accounts allow you to withdraw money from them at any time. It’s easy to open these savings accounts with nominal deposits as low as £1. This regular savings account might also pay you interest on the funds parked in them.

Lifetime individual savings accounts (ISA)

You can consider a Lifetime ISA account to park the funds saved for a mortgage deposit. First-time buyers under the age of 40 are eligible to open this account.

For Lifetime ISAs, the annual contribution limit is £4,000, which is eligible for a 25% government bonus. However, with a Lifetime ISA, if you withdraw funds for any reason other than purchasing a first home or reaching the age of 60, you are subject to a penalty of 25% on the amount withdrawn.

Cash individual savings account (ISA)

A Cash ISA, also known as a Cash Individual Savings Account, is a type of savings account available in the United Kingdom that allows individuals to save money tax-free.

If you don’t use your annual Cash ISA allowance within a tax year, you lose the opportunity to carry it forward. Cash ISAs generally offer more flexibility, allowing you to withdraw funds without penalties, depending on the account terms.

Consider house saving schemes to save money for a bigger deposit

Beyond the house saving tips mentioned above, you can look for various house saving schemes provided by the Government and lenders.

Here are a few options that you can consider.

1. Mortgage guarantee scheme

The Mortgage Guarantee Scheme is designed to help individuals secure a mortgage loan to purchase a home. It is a government-backed initiative that aims to support first-time buyers and existing homeowners who have a small deposit but are struggling to find a mortgage lender.

Under the Mortgage Guarantee Scheme, the government provides a guarantee to mortgage lenders for a portion of the loan, typically up to 95% of the value of the property. This guarantee acts as insurance for the lender, reducing their risk and allowing them to offer mortgages to borrowers with a smaller deposit.

2. Shared Ownership

Shared ownership offers a more affordable way for people to get a foot on the property ladder and build equity over time. It provides an opportunity for those who may not be able to pay the full mortgage to own a home and gradually increase their share in the property.

Under the scheme, you have the opportunity to purchase a share typically between 25% and 75% of the market value. You would then pay a mortgage on the share you own while paying rent to the housing association or developer on the remaining share.

Conclusion

With real estate getting costlier every year, the sooner you start saving for your own home, the better. Saving a large chunk of money can seem daunting, but it can be achieved with budgeting and financial discipline.

Put these house-saving tips into practice and you’ll soon achieve your goals.

Even if you have a low income, you can save enough for a deposit by making a few sacrifices. Good financial habits can help you become part of the first-time buyer’s club!

FAQs

Disclaimer: We are not providing financial advice. These are just tips for informational purposes. Also, we are not affiliated to any of the external parties linked, they are provided for reference only.

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