Top tips for saving up a house deposit

An etching of the first game of Savings Jenga

Four out of five Britons under 30 would prefer to own their own home, rather than rent, according to the Council of Mortgage Lenders, but in London, that’s easier said than done.

Home ownership is at its lowest level in 25 years and property prices have risen to about six times the UK’s average annual salary.

Raising a deposit may seem like a daunting task, but if your resolution was to stash away some serious cash this year, then here are some tips to help you do it.

Budget

It may be stating the obvious, but you’re not going to get a handle on how much you could potentially be saving unless you sit down and do the maths.

A good way to make sure your expenditure isn’t exceeding your income is to stay on top of your Direct Debits. All those gym memberships, Spotify and Netflix accounts add up, so it’s worth reviewing them regularly to shed the ones you could do without.

Another piece of financial housekeeping you should do regularly is shop around, especially when it comes to mobile phone contracts and utility bills. Price comparison websites are great for this – look out for any exclusive online deals.

Contactless payment may be the future, but it’s also expensive. You can easily lose track of what you’re spending when you’re tapping away at card terminals. Try getting cash out at the start of the week and making it last instead.

If it’s extortionate rent that’s sucking up all your cash, look for a house share with more people to keep living costs down.

Or, if you’re renting on your own and you’ve got a spare room, it might be worth getting a lodger to help you with your monthly payments.

If you’re lucky, you may even be able to move back into the family home for a while. It may not be an ideal situation, but it’s doable if you remember it’s a temporary solution that you’ll be out of as long as you continue to save.

Mates mortgages

Pairing up with a friend or family member to buy a property has become more and more popular over the past five years. So much so that most lenders will now allow up to four applicants on a joint mortgage, although they often only take the two biggest incomes into account when calculating how much to lend.

Sure, difficulties may arise when one of you wants to sell up, but beware “jointly or severally” liability clauses that entitle lenders to chase one borrower for the full amount if the other can’t pay up.

But by and large, it could be the answer to your housing woes as you’ll be able to club together for the deposit and capitalise on the borrowing power of two incomes instead of one.

You can also increase your borrowing power by finding a guarantor, someone who’s willing to offer their property up as security if you’re unable to pay for your own.

Choose the right savings account

Now you’ve worked out how to save money, you need to put it somewhere it’ll grow.

One no brainer is the Help to Buy ISA, which was announced in 2014’s Autumn Statement but only went live in December. You’re limited to putting in £200 a month and you can’t pay into another ISA in the same tax year, but the government will pop in 25 per cent of what you’ve saved on top, tax-free. There are some attractive interest rates on offer from the banks as well, with Halifax advertising 4 per cent interest rate. Sure, it’s a slow way to save, but you’d be hard-pressed to find another ISA that’ll pay you over 25 per cent interest.

If you want to save more than £200 a month, simply find an additional savings account with the highest amount of after-tax interest.

From April 6, basic rate taxpayers will be able to earn £1,000 interest a year tax-free, so that shouldn’t be a problem. An instant access savings account will give you more flexibility, should you need to withdraw money at any point or shift your savings around, but better interest rates can be had if you lock it away in a regular savings account.

As always, you should shop around and review your arrangements at least once a year so you know you’re getting the best deal.

Look at first-time buyer affordability schemes

The fall in home ownership has pushed property (or lack thereof) up the political agenda and there are now a number of government-backed schemes to help first-time buyers onto the property ladder.

If you take advantage of a Help to Buy equity loan, you’ll only have to save a 5 per cent cash deposit on a new build home and the government will lend you up to 20 per cent of the cost, leaving you to secure a 75 per cent mortgage on the rest.

From 2016, a new London version will be available that increases the upper limit of the government’s equity loan from 20 per cent up to 40 per cent. Watch out for repayment fees, which kick in after five years.

Alternatively, shared ownership may be a good option. You can part-buy, part-rent a property with a housing association, buying a share of the property you can afford. You only have to stump up the deposit on the share that you buy and you can “staircase” up to owning 100 per cent of the property as your savings or income increase.

Selling up can be a bit of a pain, as most housing associations will have “first refusal” or a period of time to to allow them to find a buyer for your property, so selling up quickly may prove to be difficult. But it’s certainly a popular intermediary option and you’ll only have to raise a fraction of the deposit you’d need if you were buying outright.

To find out more, visit helptobuy.gov.uk or sharetobuy.com


Related articles