How to save for a house deposit

Buying your first home is a huge milestone. Particularly these days when the average deposit size is £61,000, which is way higher than it was for our parents’ generation. That feeling of unpacking your stuff, painting the walls and having friends round for the first time – it’s unbeatable. But if the thought of saving up for your deposit feels overwhelming, don’t stress. Tackle the challenge head-on with our handy tips and watch your dream house piggy bank stack up.

How much do you need for a deposit?

Before you start saving, it’s best to work out how much money you’ll need so you have something to work towards.

Typically, you’ll need to put down at least 10% of the property value as a deposit. So if you’re interested in a home worth £450,000, you’ll need at least £45,000 saved up to pay upfront. Of course, the higher your deposit, the better, as you won’t have to pay as much back when you take out a mortgage, and you could get a more competitive deal. So if you can put down 20%, that’s great. Mortgage providers prefer buyers with larger deposits as they pose less risk, and with mortgage rates still unsettlingly high after Covid-19, anything you can do to reduce your mortgage repayments is a good thing.

1. Cut back on rent if you can

Rent is a substantial outgoing for most of us, with the average monthly rent recently reaching £2,500 in London. So if there’s a way for you to shave some money off this before moving house, it’s worth considering.

Sadly, gone are the days when negotiating with your landlord had a chance of working (by all means try it, but don’t get your hopes up!). In the run up to buying your first home, could you move back in with your parents or friends to trim your monthly outgoings? They might let you live for free if you’re lucky, or at least pay less than you’re currently being charged.

If you live on your own, you could explore moving into a flatshare. Going from flying solo to living with friends or even strangers might feel like taking a step back, but remember it’s only a temporary solution. You could save some serious money if you’re a couple looking to share a single room in a house. Use sites like SpareRoom to find available rooms in existing houses, or OnTheMarket if you’re looking to buddy up with people and rent a place outright.

2. Pay less for your bills

Energy, TV, phone, broadband – these are all bills you’re probably paying on a regular basis but could cut back on. You’ll probably find that many providers are willing to negotiate if you phone them up and ask for a discount. Lots of companies don’t showcase their best deals on their website or reserve them for new customers, so it’s worth asking if they have any offers available. Do your research and then pick up the phone and follow these tips for negotiating. After all, if you don’t ask, you don’t get.

If this doesn’t work, try shopping around. Unfortunately, loyalty isn’t rewarded in the world of bills, so swapping to a new provider could save you a serious amount of cash. In 2022, the average phone bill was around £38, but there are roughly 80 providers on the market. There are plenty of competitive deals out there so it’s always worth checking before you sign on to another year on your contract. And don’t forget to check your usage. If you’re paying for unlimited data but only using 20g a month, that’s money down the drain and you could downgrade.

3. Get help from the government

There’s plenty of help available from the government if you choose to use it. Shared ownership, for example, is an alternative to traditional homeownership which makes it easier for buyers to get onto the property ladder. Share to Buy is the government housing scheme that allows buyers to ‘staircase’, where you buy a percentage of the property (such as 25%) and gradually buy more until you own 100% of it. This could be an option worth considering if you have a small deposit and are happy to only own a portion of the property – and pay below market value rent – until you can afford to buy more. Take a look at what sort of properties are available and check out the eligibility criteria.

A Lifetime ISA (Individual Savings Account), on the other hand, lets you save up to £4,000 a year to put towards either a first home costing up to £450,000, or retirement. The government will add £1,000 every year on top of the £4,000 you save until you’re 50 years old. So you’re essentially getting £1,000 free each tax year. Plus, you’ll earn interest on whatever you save and it’s completely tax-free. There are a few catches – for example, you need to be between 18 and 39 years old to open a Lifetime ISA and it has to have been open for at least a year before you use it. You’ll also pay a penalty if you withdraw the cash for anything other than a first home or retirement, so make sure you’re serious about your property buying plans before you start investing money into one.

4. Upgrade to a high-interest savings account

There’s never been a better time to take advantage of a savings account. While soaring inflation means we’re paying more for everything from pints to petrol, it also means we’re getting more bang for our buck on our savings. In fact, NatWest announced that as of last month, 15% of its customers’ deposits were held in fixed-term savings accounts. Unfortunately, plenty of the high street banks are doing their best to avoid passing on the interest rates to customers, but there are plenty of other providers offering tempting rates. NS&I recently made waves by offering a market-leading 6.2% interest rate, and Vanquis Bank is currently offering a 5.95% deal. Check out some comparison sites to see what the best deals are – just make sure you’re comfortable with being tied in for a certain period of time. Many of the accounts are one year fixed term deals, but some require you to lock your money away for longer to benefit from added interest.

5. Budget to prevent overspending

It’s all well and good willing yourself not to spend money, but you may find you get to the end of the month and wonder where it’s all gone. The best way to keep your money in check is by budgeting. Work out exactly how much you have coming in each month and calculate how much you need to spend on the essentials. That’s things like rent, commuting to work, food, toiletries and bills. Anything you have left is money to save. Of course, you’ll want to leave yourself a bit of money to enjoy yourself, but make sure you’re putting enough away each month to reach your savings goal.

Budgeting is probably no one’s idea of a good time, but there are ways to make it easier. Some people prefer the traditional spreadsheet route – Capital One’s guide can help you break down your income and plug in the numbers so everything’s accurate. It’s a good idea to set up a direct debit as soon as you get paid, so that a chunk of your paycheck goes straight into your savings and you aren’t tempted to spend it.

You might also like to use an app like Chip to make saving feel seamless. Chip’s built-in algorithm looks at your income and outgoings and cleverly works out how much you can afford to save each month without making a noticeable difference to your lifestyle. You can also use the app to invest, if that’s your thing. Similarly, Moneybox rounds up the spare change when you make a purchase and automatically saves it for you. You can also invest in a Lifetime ISA through the app; it’s a bit of a one-stop-shop.

6. Sell the stuff you don’t need

This one’s a great option for a rainy Sunday. Why not have a clear out and get rid of the things you no longer need? Not only can this help you pocket some extra cash, it’ll make moving flat easier as you’ll have fewer things to pile into a van and less of a need for furniture storage. There’s no need to go selling all your favourite things, but most people have old items lying around that they no longer need, like that iPhone from 2012 you haven’t used for years. You could make a surprising amount of money selling clothes and accessories on Vinted (this platform doesn’t take a fee like Depop does), or try Shpock or Facebook Marketplace for things like furniture and electronics. Lots of online companies will even give you money for your old gadgets – one man’s trash is another man’s treasure.

7. Take on a side hustle

Perhaps easier said than done, but if you have time, it could be worth taking on another job to earn more money. This doesn’t have to be time-consuming or require you to upskill and spend all your waking hours working. It could be as simple as getting paid to dog sit or walk other people’s dogs through an app like Rover. If furry friends aren’t your thing and you work a 9 to 5, you could get a job working in a pub a couple of nights a week or in a cafe at the weekend. Maybe you’re a talented linguist or have a head for numbers – have you considered tutoring? It’s a simple way to make money on your terms, on your hours, using the knowledge you already have.

Conclusion...

Saving for a house deposit might feel like a struggle at times, but it’s one of the most rewarding things you’ll ever do. Try to think of it as a short-term pain in exchange for long-term gain, as you might have to make some sacrifices now in order to achieve your perfect property down the line. When the time comes, LOVESPACE can help to make your move as quick, easy and affordable as possible thanks to our storage and removals services. We’ll collect your stuff from your home, store it in one of our secure storage facilities, then deliver it to any UK address when you’re ready. Until then, happy saving!