One of the most important aspects of preparing to buy your own home is saving for a deposit. With the recent price recovery in the housing market, the average price of a first home in England and Wales was £176,581 in November 2014, an increase of 7.1% on the previous year. While there is significant regional variation in house prices (with stagnant or falling prices in Scotland, Northern Ireland and North East England) it is clear that for those who hope own their own home saving for a deposit is a big priority.
As well as a recovering market, 2014 has seen a steady supply of new housing and a 1.8% expansion in mortgage lending (although approval rates have fallen as a result of the introduction of the Mortgage Market Review rules). In turn, the UK Government’s Help to Buy scheme has helped over 38,000 people to get on the housing ladder. In particular Help to Buy has given access to the market to first-time buyers with deposits of just 5%, meaning that those who might have given up hope of buying their own home now have a golden opportunity.
To buy an average house, you will need a minimum deposit of 5% plus money towards the usual mortgage fees, legal costs and stamp duty. If you buy property at auction, you will need to save 10% of the property’s value. This means that for an average-priced house you will need a 5% deposit of £9200 plus fees and stamp duty, which could be £2000-£3000. It is never easy to save large sums of money, but the tips offered below should help to make saving as quick and easy as possible.
10 Ways to Save
Your ability to save money, and the speed in which you can save, will be dependent on your personal circumstances. Speak to an independent financial advisor to find out more about the options for your situation. The tips below are offered as possible ways to save for your deposit, but they will not apply in all circumstances.
1. Clear Outstanding Debt
– Before you think of saving you should try to clear any personal debt that you have, such as credit card balances or car payments. These bills usually come with a hefty interest rate (much higher than interest rates on a savings account) and so before you think about saving money, you should get rid of high-interest debt. If you still have student loans to pay off, the payments are likely to be at a low rate of interest, so while you should factor these into you regular outgoings, you shouldn’t worry about clearing this debt for the moment.
2. Scrutinise Your Spending
– If you’re serious about saving you will need to take a close look at how much you spend each month. List all of your outgoings, noting which bills you can’t avoid, and which are voluntary expenses. Focus first on how much money you spend on items you don’t need, and think about whether you can cut out this spending altogether, or limit it to one item per month. Consider whether you could walk or cycle to work rather than driving or taking the bus. If you have to drive, use price comparison websites to find the cheapest petrol in your area. If you pay to exercise, consider taking up running and ditch the gym membership. You will be surprised how reducing nights out, expensive holidays and shopping sprees can help you save money fast.
3. Shop Smart
– Another way to reduce your spending and save money is to be smart when you go shopping. Try swapping branded goods for cheaper alternatives. Use vouchers and loyalty card deals to make savings on your weekly shop, and when making bigger purchases do some research on the Internet in order to find the best price. If you usually drive to an out-of-town supermarket to do your shopping, consider ordering online to save petrol. With every saving you make the dream of your own home comes closer to reality.
4. Move in with Friends or Family
– The UK rental market is expensive, especially in London and the South East of England, with the average cost of renting now over £1000 per month. Rental costs inevitably reduce the amount of money available for saving so, if you can, consider moving into a shared house or move back home with your family for a while. If this isn’t an option, look for rented accommodation where the costs of some bills are included in the rent. This will help you to budget by reducing your outgoings and making them more predictable.
5. Research the Market
– When you are preparing to save a deposit you should research the property market in your desired area. Look at suitable properties for sale at local Estate Agents, online and at property auctions to get an idea of the price of available homes. Calculate a minimum 5% of the average property price as your deposit, plus £3000 for associated fees and stamp duty. The total is your target amount.
6. Set Yourself a Monthly Target
– Once you have worked out how much money you will need to buy your first home and how much you can put by, you should get an idea how long it will take you to save up. Set yourself a monthly budget and stick to it, knowing that every penny you save will bring you closer to your final goal.
7. Set up a Standing Order
– To avoid spending the money you intend to save, set up a standing order to a high-interest savings account. This will help you to get used to having less money to spend each month, and make sure that you achieve your saving target. If you think of saving as another kind of bill it can help you to keep going when you are tempted to splurge on something else.
8. Research the Best Savings Account
– Once you start saving you should research the best savings accounts on offer. An ISA account offers tax-free interest on savings to a limit of £15,000 for the financial year 2014/15. At the time of writing, BM Savings offers an ISA with a variable rate of 1.35% plus a bonus of 0.85% for the first 12 months with a minimum deposit of £1. Nationwide offers an ISA at a variable rate of 1.25% and allows unlimited withdrawals without penalty.
9. Use Online Budgeting Tools
– There are many free budgeting tools available online to help you track your spending and identify any areas where you can save. Use these to help you compare your income with your outgoings and to help you work out what you can realistically afford to save each month.
10. Find Additional Income
– If you are unable to save as much as you would like based on your current income, consider ways that you might be able to make extra money. Sell any clutter at a car boot sale or online auction site, consider getting a second job to boost your income, or turn one of your hobbies or skills into a small business. You can make money by signing up to be a mystery shopper, a TV or film extra or even pet or house sitting. Another possible way of finding cash is by using sites like www.mylostaccounts.org.uk to find any money lost in old bank accounts, premium bonds or other investments.
Saving for a deposit for your first home may take a long time and there could be moments when you feel like giving up, but it is important to stay positive. Although you may have to make compromises in the short term, it will be worth all the effort when you move into your own home. Get family and friends to support you by acknowledging the progress that you are making, and ask them to encourage you to keep going when you have doubts.