Saving for a deposit - what are the best ways to build up your funds?
Posted 4 November 2015 by Keith Osborne
For many homebuyers – particularly first-timers – saving the deposit is the toughest part of the purchase process.
Compared to the tough new mortgage lending rules, getting the money together to put down on your new home will probably be even more difficult. For many, the last few years have brought scant increases in wages, even as house prices have surged ahead.
In England and Wales, the average property now costs £186,553, according to September’s Land Registry data, and in London, you’re looking at a pocketful of change from half-a-million, at £499,997. With the average deposit at around 30%, the sums involved are considerable. If you’re not on a big salary, they are even harder to attain against rising rents and bills and low savings interest rates.
Of course, schemes such as Help to Buy are one alternative – the deposit required can be as little as 5%, if you’re buying a home under this government initiative. But you’ll also need to factor in your other costs – legal fees, removal costs, stamp duty etc.
So, how can you maximise your savings to reach your deposit target?
It’s never too early to start saving. Putting money to one side is a great habit to get into, even if buying a home may not be your initial aim. Whether it’s putting spare change into a jar or diligently transferring money from your current account every month, every little really does help right from the word go.
Set a target
Be realistic in your expectations. Aim for a property at a price that you think you can afford (you might want three bedrooms but could you cope with a place with two?) and a time scale that you can achieve. If you can save £400 a month and need £15,000 in all, it’s going to take you three years. Aiming for a Shared Ownership property will reduce your deposit requirement and get you on the property ladder at the same time.
Reduce your spending
You’ll need discipline to do this, but even small sacrifices can add up to a lot. Forgoing the posh coffee on the way into work might save you £2 a day or more – upwards of £500 in a year. Cancelling any underused subscriptions (magazines, clubs etc) will also reap benefits that will quickly accumulate.
Reduce your rent
Paying rent is probably the biggest hindrance to saving the cash to buy your own place, and rents are rising quickly in many regions. Could you cope with downsizing to a smaller place for a while? Is it possible to move back in with parents for a period of time? There’s a sacrifice to be made here that won’t suit everyone, but could mean boosting your monthly savings considerably.
If you don’t have access to the money in the first place, you’ll miss it less. Set up a standing order or regular transfer (usually free of charge) out of your current account into a separate savings account every week or month. It’ll stop you being tempted to overspend.
Look around for the best rates
The biggest brands spend a fortune on marketing and advertising, so it would be easy to get the impression that they are your best bet for saving your money. But there are lots of other large and small organisations that don’t spend savers’ money on ads and offer better returns instead. Look at comparison websites and check on the internet for a lesser-known brand that will pay you more.
Check your rates regularly
Many of us have put our money into accounts that have promised the world, only to find a year or two later that the rates have been slashed without us really noticing. Keep your eye out for the rates on your existing accounts and compare them to the best deals. Don’t be afraid to move your money around if you can see a better deal elsewhere.
Help to Buy Isa
Help to Buy Isas were announced by George Osborne in the March 2015 budget. They are specifically aimed at people saving for their first home and are set to launch in December. Like normal Isas, these provide a tax-efficient way of saving. There’s a contribution limit of £200 per month (to which the government adds £50) and a total limit of £12,000 (£15,000 once your tax is added back). If you’re buying with a partner, you can both take out a Help to Buy Isa and double the benefit.