Guide to saving for a house deposit

How many times have you vaguely promised yourself you’ll cut back on general spending to save up for something?

And how many times has that approach resulted in you promptly ending up with a perfectly sized pot of money?

It doesn’t work, does it?

Unless you set yourself clearly defined goals, within an achievable plan, the chances are you’ll always find something else to spend that money on.

So get your plan down in black and white, and understand what it is you’re aiming for, and what impact that will have on your lifestyle. You’ll need to know:

• How much are you likely to need for a deposit?
• How many months will it take you to achieve that total sum if you could save £200 / £300 / £500 / £1000 per month?
• What must be shaved off your usual spending habits to achieve those kinds of savings every month?
• Which is the most realistic monthly sum you can achieve?

If you need help answering some of those questions, bear in mind that:

• Mortgage lenders typically ask for first-time buyers for deposits of 5% – 10% of the value of the property.
• Regional variations do sometimes affect the amount lenders require. So speak to your mortgage adviser or local estate agents if you’re not sure.
• Nationwide research suggests that it takes an average of 9.6 years for a single renter to save a 10% deposit (based on an average wage and average living expenses).
• That timeframe extends to about 18.3 years if you’re in London due to higher property prices and higher living costs.
• In regions like the North East, the average time period it takes to save for a similar-sized home deposit is just 4.6 years

There are budgeting apps that can help you work out where your money is actually going every month – and where you might be able to cut back or use cheaper alternatives.

Cutting down on living costs means more money for your deposit.

The following options may help speed up the growth of your savings:

• Opt for shared accommodation

If friends or family have a spare bedroom, it can be a good way to free up funds for a while.

Alternatively, look at a house share, co-living development or consider taking in a lodger. House shares can significantly lower your rent liability and utility costs. Alternatively, find somewhere closer to work to save on commuting costs.

• Take control of your monthly outgoings

Check what subscriptions you might have going out that you’d forgotten about.

Use price comparison sites to find out if you’re paying more than you need to for your car insurance, house insurance, utilities and other essential bills.

Eat in instead of eating out, take prepared lunches and a water bottle with you when you’re out and about to avoid having to spend money unnecessarily.

Shop around, and get into the habit of batch cooking.

Look for vouchers or discounts that mean you don’t have to entirely sacrifice your social life.

Ultimately though, you might need to get good at avoiding temptation, and saying no. Remember the end goal though, and that it is short-term pain for long-term gain!

If you can also boost your income, while making savings in your outgoings, then even better. Of course, your ability to increase your income will depend on what skills you have, and how much free time and energy you have outside of your normal day job.

The following are a few options to consider:

• Start up a side hustle. Could you offer your day-job services on an additional freelance basis? Or do you have other skills that you could use to earn a little extra money?
• Sell what you no longer need using online selling apps such as eBay, Facebook Marketplace, and Vinted.

The good news is that the UK government allows people to sell goods up to the value of £1,000 without needing to declare it and pay tax on it. This also applies to what the government calls ‘casual services’ such as babysitting or gardening jobs, making them great ways to increase your income.

Note though, that under the current rules, anyone with additional income of more than £1,000 from side roles must file a self-assessment tax return.

Before you start that savings pot, wait! Have you heard about LISAs?

A Lifetime ISA (LISA) is a tax-free savings account designed specifically to help first-time homebuyers get on the housing ladder. The big draw of this type of savings account is that the government tops up anything you contribute with a 25% bonus. There is a limit on what you can put in – £4,000 per year – meaning the government will only add in a maximum of £1,000 per year, but it’s still free money! And over several years, this approach will produce a sizeable deposit.

You must be aged between 18 – 40 to open a Lifetime ISA, and you must make your first saving into the account before you’re 40th birthday. And you can continue saving into the account until you’re 50.

If you took full advantage of this account for the maximum possible period, you’d have saved £160,000 – with £32,000 of it being contributed by the government. (This assumes the annual allowance remained the same for the full 32 years.)

To see our Top-rated LISAs, visit our Best Lifetime ISA page.

For more general information on LISAs, see our Guide to LISAs.

Anything we haven’t covered? Get in contact and let us know.