How to save for a deposit to buy your first home

For many home buyers, raising the funds for a deposit is one of the biggest hurdles to getting their foot on the first rung of the property ladder. Even with the Help to Buy scheme, which is available on new build properties reserved by 31 October 2022, buyers must still be prepared to pay least 5% of the property’s value in cash as the deposit.

In 2021, the average price of homes purchased by first-time buyers in the UK was £264,000, making £13,200 the cost of a 5% deposit on the average first-time buyer property last year, demonstrates how much more achievable getting onto the property ladder is compared to years gone by.

Whether you’re in the early stages of saving for a house deposit, or have saved for years and need that final boost, this handy guide advises on small changes that can lead to big savings for purchasing your first home.

1. Subscription, subscription, subscription

In 2021, according to Barclaycard, the average Brit was spending £620 over the course of year on subscriptions, up 12% from 2020, when the nation was spending £552.

It’s time to conduct a full audit on the subscriptions you pay for! Go through your last six-months bank statements, direct debits and standing orders, listing all your regular and automatic payments, including subscriptions, and be truthful with yourself – how often do you benefit from the subscription? It is an important purchase right now? Can I live without it for a year?

Consider that a one-off payment to rent a movie online could negate the need for monthly instant streaming access. What about product subscriptions… Did you sign up to monthly wellness and beauty products six months ago, and now have a mountain of unused items?

Once reviewed, cancel anything that you haven’t used in the last few months or no longer need or benefit from, e.g. TV and music streaming, newspaper and magazine subscriptions, monthly socks and make-up deliveries, weekly flower orders. You can do this through your bank, by directly cancelling it will prevent the company from taking any further payments. However, you should always check the terms and conditions of your contracts.

2. Open a Lifetime ISA

Even though the popular Help to Buy ISA was discontinued in 2019, whereby account holders would receive a 25% Government bonus on top of what they had saved (up to £2,400 a year), there’s another similar option still available.

Lifetime ISAs are available to open through plenty of banks and investment firms. Similarly to the Help to Buy ISA, account holders receive a 25% Government bonus on top of what they save, but with a Lifetime ISA this can be up to £4,000 a year, instead of just £2,400! You also don’t have a £200 limit per month like you would have with the Help to Buy ISA, meaning you could shift all your savings (up to £4,000) over to a Lifetime ISA in one go and still qualify for that year’s bonus.

However, a small drawback to be aware of with a Lifetime ISA, is that if you have to withdraw funds at any time for any reason other than to buy a house or towards your retirement, you essentially have to return the 25% earned from the Government in the form of a withdrawal fee. So make sure you’re putting away money somewhere else for those rainy days and view it as a great incentive to keep your hard-earned pounds in that ISA!

You have to be aged 18-40 to open a Lifetime ISA and your first deposit must be paid in before you turn 40.

You can find out more information on Lifetime ISAs here.

3. Curb the cost of rent

It’s a known fact that rental prices are sky-high at the moment. In fact, according to Zoopla, the proportion of earnings spent on rent has risen to 52 per cent for a single earner; a 14-year high. To save money on conventional renting, consider options such as a flat share with co-living spaces, where you can save money by taking the smallest bedroom, for example.

While location, location, location is a ‘must’ when buying a house, consider temporarily renting in a location that doesn’t have a rental premium. Busola, a first-time buyer at our NewHayes development, opted to live just outside of London, in a shared flat in Ashford, Kent, to drastically reduce her living costs.

For many it’s not possible, but if you can, see if a family member or friend would consider offering you a room temporarily for a lower rental cost; this can be a good short-term solution to avoid long-term private rental contracts, and boost monthly savings, while also releasing any deposits tied into a rental propert

4. Money saving apps

There are some fantastic banking apps on the market that can help with saving by regularly moving small amounts of money into a separate savings account or rounding up your purchases and automatically saving the difference. For example, using a personalised and pre-set action, if you spend £1.70 on a coffee, banking apps will round this up to £2.00 and bank the 30p difference into a personalised saving pot. Though it doesn’t seem like much, this is a great way to save over the long term, and often without even noticing the difference in your daily bank account.

Apps which are approved and regulated by the Financial Conduct Authority include Monese, Plum, Starling, Moneybox, Revolut and Monzo. These can all be downloaded on app stores and can help you to budget, save and round up your cash instantly

5. The 50/30/20 Rule

The 50/30/20 rule is a useful guide to help you manage and navigate your spending. It’s imperative to be mindful and track your spending when saving for a mortgage, so this handy rule can help you decide if you’re happy with where your money is going.

The rule stipulates that 50% of your income should be spent on needs or necessities. This means essential living expenses, such as rent, bills, food and transport to work. 30% of your income can then be spent on wants, this includes discretionary spending such as meals out, shopping, trips and subscriptions. The remaining 20% should therefore go towards your savings - this means transferring straight into your savings account each month.

For example, if your monthly income is £1,700 after tax, you might spend £850 on your needs, £510 on wants, and £340 into your savings. This method worked brilliantly for NewHayes resident Busola, who was able to purchase her one-bedroom flat using this method. She said, “My strategy around finance is fairly strict; 50% of my income goes on bills and living expenses, 30% on entertainment/lifestyle and 20% on savings and investment. This approach meant I could reach my saving goals in a realistic time frame, while continuing to rent and enjoy life’s small luxuries like socialising.”