How to Save for a Deposit on your Next Home

Posted by canythould43 on in Personal Finance
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Owning a home is something that many of us dream of one day doing, but sometimes it can feel like a hopelessly distant goal. There is no doubt that getting on the property ladder is harder today than it ever has been in the past.

Even with the various assistance programmes that are available, the average person will need to make some serious saving commitments, and reign in their spending in general, if they are to stand any chance of saving enough money to buy a property.

The first step of buying a new property will be saving up for the deposit. The size of the deposit will vary depending on the property. If you qualify for the government’s Help to Buy scheme, you may only need to pay a 5% deposit.

However, for most people this deposit will be closer to 10%. Here are some of the simplest yet most effective ways that you can begin saving up for a deposit on a new property.

Open a Savings Account

Obviously, the earlier you can begin saving, the better. But, with that said, it is never too early or too late to begin taking control of your financial future. Those of us who neglect our finances for prolonged periods come to regret it.

Once you have made the decision to pursue a new home, and you are looking at ways of raising the necessary capital to make that dream a reality, you should begin investigating potential savings accounts.

When you have all of your money in one account, it can be difficult to keep track of what you are saving. This is why you should think about opening a savings account that you can use to put the money that you save each month into.

This way, you can see a clear figure of how much you have to spend for the rest of the month and you’ll be able to keep it separate. You would be surprised at how much difference a savings account can make to your finances.

Savings accounts will be most effective when they can be given a long period of time to mature. There are a variety of different savings accounts out there, each designed to cater to different needs and circumstances.

One of the most popular types of savings account is the Stocks and Shares ISA. The stocks and shares ISA limits the amount an account holder can invest in a single year to £20,000. For most people, this allowance should be plenty.

Begin Budgeting

The first step towards taking control of your financial future lies in personal budgeting. Setting a budget and sticking to it is a lot easier said than done but if you want to be able to save up for your first house then you are going to need to try.

Think about everything that you are spending each month and try to come up with a budget. Your budget should include things such as food, rent, bills and other things that you need to pay for. You can give yourself a little extra to pay for socialising or whatever you spend your money on but make sure to keep this low.

Once you have set your budget, you can give it a go and adjust it if you think that it is not possible. The concept of budgeting is very simple; you make an assessment of your current financial situation and plan your subsequent spending decisions accordingly.

By putting together a comprehensive personal budget, you will be setting yourself achievable financial goals and giving yourself a way of measuring your success in achieving them.

The first step of budgeting is conducting a mini-audit of your own finances. Many people find it helpful to track their spending over a period of weeks or months prior to formulating their budget. For those that can afford to take the extra time, this is a great approach to take.

In taking the time to ascertain exactly what your current income and spending figures look like, you will be able to plot a budget that is rooted in an in-depth understanding of your finances. Without taking the time to audit yourself first, you will have to use your best estimates of your spending to properly formulate a budget.

Temporarily Downgrade Your Accommodation

If you are currently staying in rented accommodation, you could potentially save yourself some significant money by downgrading your accommodation temporarily. Whether this means moving to a place with lower rent, a cheaper area, or even back in with your parents for a while, temporarily reducing your rent and general accommodation can give you the time and space to save for something better.

You should look at the downgrade in accommodation as a temporary measure. Once you have shored up your financial position, you will then have many more options when you begin looking at properties. If you already have a particular property in mind, you can ascertain exactly how long you will need to save up the necessary funds for a deposit.

If you can spend less on your rent each month, you’ll find that you can save some money that can go towards your mortgage. If downsizing isn’t an option, you could consider renting out your spare room or using a site like Airbnb to find short-term guests. Think carefully about how much you are spending on rent each month and you’ll be able to save a lot more.

Review the Market

The more you know, the better equipped you will be and the more informed the decisions you will make. Regardless of what stage of the process you are at, whether you are still working out what your current financial position is, or if you have your heart set on a particular property and are now looking at how you can get there, it is sensible to review the market.

If you haven’t got as far as even deciding the general area that you are going to live in, it will be all but impossible to gain a picture of the market. After all, what market would you be looking at?

As soon as you have a good enough idea of your plans to begin seriously looking at properties, or at least shortlisting potential areas to move to, you should begin researching the house prices in those areas.

Remember to make allowances for the price of the properties to increase in the time it takes you to save up your deposit. A general rule of thumb is to add another 5% on to the value of any property for each year that will pass. So, if you are looking at moving into your next home in 3 years, you should add 15% onto the price.

Make a Savings Schedule

Once you have established your current financial position, as well as ascertaining as precisely as you can the amount of money you will need to purchase your preferred property, you can then put together a savings schedule. This is a roadmap of the savings steps that you will need to take in order to get from your current position to where you want to be.

Your savings schedule will be influenced by your budget, but whereas your budget is about controlling your spending on a day to day basis, your savings schedule is about long-term goals. You should set yourself savings milestones, for example by planning to have saved £5,000 after the first year.

Help to Buy

If you have never heard of a Help To Buy savings account, then you’ll be glad to know that this government scheme can help you to save for your deposit. With one of these savings accounts, you’ll put a bit of money in each month and when you are finished saving for your deposit, the government will add 25% on top of what you have saved.

This is a really good scheme and if you are planning on saving for a house you should make sure to get a Help To Buy ISA before you miss out on your great bonus.

The UK government’s Help to Buy scheme was designed to help first time buyers take their first step onto the property ladder. Under this scheme, first time home buyers can pay a 5% deposit, half of the standard 10%, with the government or a developer lending a further 20%. This 20% loan is interest-free for the first 5 years but note that this scheme is only available for new-build homes.

The Help to Buy scheme has already helped hundreds of thousands of first time buyers to find and acquire their first property.

Find Some Housemates

One simple way of reducing the financial burden of a property is to split the bill with other lodgers. Whether you look for friends to move in with, or you search for some potential housemates online, if you can find some other lodgers to move in with you, you can land a bigger property without having to pay through the nose for it.

Try Temporary Work

If you want some extra cash to help to go towards that deposit, you’ll need to think about taking on some extra hours at work or applying for a second job. If you can’t commit to two jobs, then you should think about trying some temporary work. These sorts of jobs only last for as long as you can commit to and you’ll be able to make some extra cash in no time.

Ask Your Parents

Our final tip for those who are trying to save up for their first house is to ask your parents for help. Although you might not want to borrow or take any money from your parents, you might find that they are willing to help you out in the short term. You can make an arrangement to pay back the money that they lend you over time, without any interest added on. This way, you’ll be able to save up a lot quicker and get on that property ladder before you know it.

f you are planning on buying your first house, you might want to think about it carefully and take on board the advice that we have given you in this article. Do your research and find out more about savings accounts and the Help To Buy government scheme.

If you do, you’ll be able to save a lot more money in the long run, especially with that extra help from the government. You should also make sure that you set yourself a monthly budget and that you stick to it. It can be easy to go over budget, so this is something which you are going to need to be strict about.

Getting on the property ladder has never seemed like a more distant ambition for many people. However, with perseverance and preparation, it is possible for anyone with the necessary determination to save up the necessary funds to make their first property purchase.

It isn’t an easy journey to make, but it is one with huge rewards at the end. Remember, it is never too late, or too early, to begin saving to purchase your first property.

I like to take risks, That's how I make money. But they are calculated risks.


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Guest Monday, 26 September 2022