Getting on the property ladder can seem unsurmountable and the upfront financial costs can be considerable. Even a 5% deposit can be quite a large sum of money and that is pretty much the absolute minimum deposit that a buyer will need to put down when buying a house. In this article we hope to help you on your way by sharing tips and advice on some of the best ways to save for a deposit.
The first thing to do is understand how much money you will need for your property purchase as just saving for the deposit is likely to leave you short of cash. You will need money for solicitor’s fees, stamp duty if applicable, the deposit, the move itself and then any items you need to buy in your new home. Once you have a rough idea how much money you need, you can set a savings target. Now it is time to be doubly realistic: how much can you sensibly afford to put to one side on a monthly basis? This will define the timeframe over which you will need to save. Bear in mind that it won’t necessarily be quick so you need to set a realistic timeframe, which can be years!
Set up a Savings account
To reduce the temptation to spend your savings, set up a dedicated deposit savings account which has restrictions on how the funds in it can be spent. There are two benefits here: You will tend to get slightly better interest rates on a savings account, which will boost your savings slightly and money tends to be harder to withdraw meaning it is harder to dip into the pot. You can also set up an Individual Savings Account (ISA) and we will cover these in a little more detail later. Once you have your savings account, set up a standing order from your main account to transfer your savings the day after you get paid. The reason for doing this is that, towards the end of the month, you might well have overspent and no longer have the money to transfer. Doing it right at the start of the financial month means you can’t spend it.
Understand your finances
We all have various memberships and subscriptions and we love to shop. You need to understand your outgoings and cut back wherever you can:
- Do you really use the gym often enough to justify that £50 per month membership?
- Do you really need a phone package with unlimited data?
- Do you need every single satellite TV channel and every streaming service?
- What about your other memberships and subscriptions? Can you live without them for a year or two?
- Can you shop at cheaper supermarkets or buy the supermarket own brands rather than the big name brands? You’d be amazed how much you can shave off your weekly shopping bill by buying own brand products or shopping at budget supermarkets.
- Use vouchers, where you can, to save money
- Do you need designer brands when you buy clothes or accessories or can you buy cheaper clothes which are still very good quality?
- Buy big ticket items in the sales (although do check prices beforehand as not all sales are great value)
- Do you need to have a takeaway every week? It might be a treat but take-outs can add up. That goes for lunch too, can you make your own lunch and take it to work rather than buying your food?
It might seem obvious, but there will be, in your normal every day spend many areas where you can cut down on costs.
Share accommodation Costs
If possible, can you move back to your parents for a period and save on rental costs? Can you get a flatmate (with your landlord’s permission) to help reduce monthly outgoings? This has the double advantage of saving on accommodation costs but also on utility bills as these would be shared. It might not be ideal, but there are big savings to be made doing this, all of which will top up your house fund.
Make the Switch
If you are living in rented accommodation and/or have credit cards then keep an eye on the utility and credit card market. Switch utility providers annually to make sure you get the best deals each year. You can save hundreds of pounds by switching, typically. As for credit cards, switch your balance to zero interest cards. This means you will pay them off more quickly without having to increase your payments.
Take on a part time job
Although you might well be working full time, do you have time for a second job? If you do and it won’t stretch you too much, this can be a good way of earning extra cash in the short term while you save.
Sell unwanted items
One person’s rubbish is another person’s treasure as they say! Do you have things lying around that you never use and have no real intention of using? If so, why not sell them? You’d be amazed what people will buy and it will turn your dust collectors into cash.
Open an ISA
Any ISA is a good option and allows you to save up to £20,000 per year at a decent interest rate without paying tax on the interest. The best ISA option at the moment for those saving for a deposit is the Government backed Lifetime ISA. This scheme is open to anyone between 18 and 40 allows you to save £4,000 per year with the Government adding 25% of the saved amount annually. So, if you save £4,000 the Government will give you, free of charge £1,000. It makes most sense to open a lifetime ISA as well as a normal ISA, if you can afford to save enough as this will give you the best of all worlds.
Ask the bank of mum and dad
Although probably the last thing you want to do, never underestimate the bank of mum and dad and most parents, as long as they can see that their child is trying hard to save, would be more than willing to add to the pot. If you don’t want to do that, then why not explain what you are doing and ask for a contribution instead of a birthday present? Saving for a deposit is hard and does take time and requires sacrifices, but it is worth it and the more you can cut back, the sooner you will be in your very own home. Making just a few changes to your lifestyle will soon see the savings pile up.