One of the most intimidating things for many would-be homeowners is saving up the deposit. After all, it’s probably the biggest amount of money you’ll ever have to save and then spend all at once!
Even if you have a home to sell to raise a deposit, you may want to save some yourself to allow you to get a bigger house or put more money down.
However, it’s not easy to put away lots of cash over a long period of time. Affordability aside, knowing what target you should aim for, where to start making cut-backs and where you should actually be storing your deposit can be a challenge. Especially if you’re a first-time buyer, as you’ve never done this before.
To help get you started, here’s our guide to saving up for your home deposit.
Step 1: Work out how much you need to save
This might be more complicated than it sounds, as you need to factor in what you can reasonably afford to spend on mortgage payments and bills each month, as well as the average cost of homes that meet your specifications but won’t break the bank.
Read our blog ‘How much should you save for a house deposit’ to find out what options you have based on mortgages available.
Generally as a rule, the more deposit you put down, the smaller your monthly mortgage payments will be, so even if you’re looking for a home on the cheaper end of the scale, you might want to save a large deposit.
Step 2: Think about how much you can save
Look at your current incomings and outgoings to see how much money you have left over to put away each month, then look to see if you can reasonably reduce any of your outgoings to make this number larger.
You should also see if you have any assets you can sell to raise extra funds. Could you down-size your expensive car for example?
Once you know how much you can put away, work out how long you would need to do this for to get the deposit you need.
Step 3: Work out where to save your money
Where you put your cash could determine how much you end up with. Here’s a brief summary of some of your options.
Current account: Some people choose to save in their current account to reduce the need to manage multiple accounts. However, there are downsides to this, as you won’t earn as much interest and you run the risk of dipping into your house fund.
Cash ISA: This is a standard type of ISA and it’s the most popular for Brits looking for a savings account. You basically pop cash in it regularly and earn interest on it. There are sometimes rules about when and how you can withdraw money, so you’ll need to check. It’s also worth noting that the rates of interest you can earn on most cash ISAs is now pretty low.
Help to Buy ISA: This is a government scheme that basically allows you to claim a government bonus towards your first home of up to £3,000. Find out more here. There are a few rules and eligibility factors to consider and there is a limit on how much you can save each month, so you may want to save money elsewhere too if you choose a Help to Buy ISA.
Lifetime ISA: Since April 6th this year, people have been able to put £4,000 per year into a Lifetime ISA, which is then topped up with 25% bonus from the government. So, if you save £4,000 each year, you’ll have £5,000 in total. Like the Help to Buy ISA, there are a few rules and eligibility criteria to be aware of.
What you may find is that a combination of some of the above methods, such as a cash ISA and a Help to Buy ISA, may work best for you.
Step 4: Find a way to pay
The best way to ensure you’re able to save the money you need to for your home is to automate it. Many people choose to set up a direct debit to their savings account so that each month they know money is being put away. However, if you want more flexibility to vary the amount you put away and when, you can make the transfers manually. If you do this, you need to make sure it’s incorporated into your routine. For example, each pay day transfer the money after you’ve checked your bank account. This will help to make it a routine and ensure you don’t accidentally miss a month and go off track.
Step 5: Monitor your savings
Make sure you check your savings regularly. This help to keep you on track, as you’ll feel great seeing how much closer you keep getting to your goal.
See your free credit report and score to help you monitor all your different financial accounts when preparing to buy a home and to make sure your credit score is in good place. Remember, the better your score, the greater your chances of being approved for a mortgage.