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Starting Saving

It doesn't have to be all or nothing - ease into saving for your home deposit with the first guide in our deposit saving series.

Starting Saving

So you’ve decided you might want to start seriously saving for your first home. It can feel overwhelming as it’s a long term lifestyle change. But don’t worry – we’ll start out easy.

This first guide will help you assess your spending, get some quick wins and forge some money saving habits that are so small you’ll barely even notice the difference in your lifestyle.

Once you’re comfortable with saving, and know what your goals are, you can move on to the second guide in the series: Sacrificing to Save.
  First things first...

How much do you need to save?

To know how much you need to save for a deposit, you’ll need to do a little research on the type of property you want.

Consider:

  • What area do you want to live in/ where can you afford?
  • What’s the average price of a property you’re looking for? Remember to be realistic, looking for properties that are workable, rather than your ideal dream home.
  • Leasehold or freehold?
  • A flat or a house?
  • Do you have any ‘must haves’, for example parking or a garden?

How much is a deposit?

Many lenders will advise that 10% deposit is a good idea, however some schemes and lenders will take 5%, which is also acceptable.

There is a debate as to whether the bigger a deposit you put down, the better off you are. A larger deposit means a smaller mortgage, smaller payments and a better deal long term. However, a larger deposit means that you will be saving for longer, therefore waiting longer to put down the deposit. Waiting too long to put a deposit down on a house means prices could go up and you could lose out on the property or area you want to live in.

If your annual income could allow you to reach a 10% deposit fairly quickly it can be the better option, but for many First Time Buyers, 5% will be the safer, more achievable goal.

Why does my income matter?

Banks will not want to lend you more than 4.5 times your salary, as a general rule. This means that you’ll either need to pick a property that is within reach of your salary, or save a bigger deposit so that you’re borrowing less. Alternatively, you could buy with a friend/partner.

Other things to include in your saving amount:

Whilst it’s easy to just focus on the deposit, there will be other costs when you buy your home, like conveyancing costs, surveys, other fees and costs you may not be aware of.

You can use our Moving Cost Calculator to work out what these might be. Add these costs to your total saving goal amount.


Where will you save?

It’s not just about you working to improve your savings – your savings need to work for you.

The type of account you put your deposit in can make a difference.

Two home-related options are the Help to Buy ISA and the Lifetime ISA. Be aware that since November 2019, new applications for the Help to Buy ISA are no longer being accepted. So if you already had one open it will have continued to function as normal, but if you're looking to open an ISA now, it will need to be a Lifetime ISA. It might also bee a good idea to move your funds from your Help to Buy ISA into a new Lifetime ISA, but you should first figure out if thats a good choice for you. You can use our guide to help.

A Lifetime ISA will allow you to pay in up to £4000 per year. The government will then add 25% bonus, capping at £1000 per year. For example if you pay in the full £4,000, you will get £1,000 from the government. The maximum property price you can pay for using a Lifetime ISA is £450,000, this home can either be your first home or saved for your retirement. Remember that this ISA can only be applied for if you are under the age of 40, and can only paid into until you trun 50.


Making a budget

Now comes the fun stuff – you’ve worked out how much you need, where you’re going to put it and the nice little bonus you’re going to get on top.

So how do you assess your spending and saving habits?

Start with the easy wins:

Cancelling unnecessary spends

Have a good honest look at your accounts (yes, we know it’s painful). The first thing to do is look at those direct debits – the lapsed memberships you never take advantage of, the magazine subscriptions, streaming services you don’t use.

This isn’t about cutting down on the things you do use (yet) - but just about identifying anything that goes out of your account that shouldn’t be, just because you hadn’t really noticed it.

Dealing with debt

Nearly 27 million adults in the UK have overhanging debts, that’s more than half, so if you’re hoping to buy a home but need to get your finances in order first, you’re not alone.

A mortgage is one of the biggest debts you can take out, so mortgage lenders are not likely to want to lend you more money if you already owe a significant amount.

Clearing your debts should be the first order of business, whether that’s credit cards, loans or an overdraft. Luckily for many first time buyers, your student loan does not appear on your credit history and as a result will not automatically affect your chances of getting approved for a mortgage. However if you're making repayments towards your student loan, as with any outgoing this will be taken into account by the lender when they're deciding on your ability to make your mortgage repayments. This article from Which? on the impact of student debt on getting a mortgage gives you a bit more information.

There are some great sources of information about clearing debt on the Money Advice Service, but here are a few ideas to get you going:
  • Transfer any existing credit cards to a 0% card so you can pay it off without incurring interest and fees.
  • If you have a variety of different types of debt, collate them all together into a low interest loan.
  • Alternatively, if you have a few smaller debts as well as a large one, pay off the smaller ones first. You'll feel like you’ve achieved more and they can be out of the way.
  • Set up direct debit payments at more than the minimum payment. Make sure these come out as soon as you get paid. If you have anything left at the end of the month, add that amount to pay off your debt.
It can also help to improve your credit rating in these ways:
  • Ensure you are not linked to people with bad credit (previous housemates, former partners etc).
  • Ensure your address is up to date.
  • Make sure you are listed on the electoral roll.
  • Cancel any unused old accounts/credit cards etc.

There are various debt and money support services available to help you get on top of anything you owe. It’s also worth remembering that having savings when you have debt may be costing you. For example, if you have £3,000 worth of credit card debt, which you are paying interest on each month, but you have £3000 in savings, you are paying out more than necessary. You’re losing out by keeping those savings. Whilst it can feel painful, paying off as much as you can will set you in better stead and save you more going forward.


Don’t become downhearted – taking control of your finances will mean you know exactly where your money is going and get you one step closer to home ownership.
 

Noticing trends and making a plan

Many people feel overwhelmed trying to make a budget – they either dismiss it as unnecessary, or go too far the other way by making rigid saving plans that have them living on a shoestring indefinitely.

Just like a fad diet, if you limit yourself too much you’re going to break. If you stop all spending, you’re eventually going to crack and go on a spending spree.

Instead, just look at your accounts. If you can, get a print out of your statements for the last few months.

Get out the highlighters and colours, and identify anything that is:
 
  • A necessary payment (rent, bills, travel, food)
  • A treat (meal out, lunch, coffees, cinema etc)
  • Completely pointless
It’s likely as you look through your statement you’ll be left wondering what you bought at certain shops, or why all those small payments added up. What did you actually spend on? What brought you joy? What was frivolous?

Look for patterns and habits – buying through boredom on your lunchbreak, or spending more on the weekend when you’re out and about? Out of these, what can you cut? Even just looking at this and knowing you spent £400 on restaurants last month can be an eye opener, making you think twice next time you head into town for a meal.

Start small – make your first cut. One coffee a week instead of four? Half the number of meals out a month? Don’t go straight to zero, just make sure that anything you spend money on, you are actually enjoying and savouring.
 

Automating your habits

Automating payments should help take off some of the pressure – so automating any payments to loans or credit cards (always at the highest amount you can afford, rather than the minimum payment) and payments to your saving account will help.

It supposedly takes 21 days to form a habit, so think about how you’ll change your attitude to saving and make a habit out of it.

It might be saying ‘no’ more often to nights out. It might be switching the Friday night takeaway to a homemade dish. It might be doing a food shop to make lunch for the week so you don’t have to buy it.

Anything you can do to automate your attitude and actions so they are geared more towards saving than spending, do it!

Getting a helping hand

Whilst the ease of contactless payments means we’re tapping our cards more often, technology also has a lot to offer the saver.

With friendly AI and apps offering to sort your money for you, there’s no end to the ways your mobile phone can help. Whether it’s Cleo sending you Facebook messages to highlight spending trends and make recommendations, or Plum and Moneybox rounding up your spare pennies into savings or investments, there’s help available.

Have a look at these articles on the top apps to help you save money for your deposit and the social accounts to follow to get you saving.
 

How much can you realistically save?

Be sure to leave yourself enough money at the end of the month to avoid going into your overdraft or facing fees and charges. If you’re not sure, start out with a small monthly payment and increase it month by month.

Or, work out how much you need to save and how many years until you want to buy your home, and decide your monthly saving payment that way. If it’s workable, go with it. If it seems a little steep, have a read through of our second guide that will help you supercharge those savings and minimise your costs to reach that goal.
 

Thinking about your credit score

Whether your first step is dealing with debt, assessing your spending or choosing the right account to save your deposit in, you can’t forget about your credit score.

Your credit score is partly what mortgage lenders and banks will judge you on – it shows how good you’ve been at paying back money in the past and a high score will get you better deals. It shows you can be trusted to pay back such a large sums.

You can find out your credit score in a number of ways, by using companies like Clearscore, Experian or Check my File.

Some quick ways to improve your credit score: If you don’t have any debts to pay off, you can build credit by being accepted for a credit card, putting a small amount on it every month and paying it off in full.

Don’t forget… 

This is just the start of your saving journey, but by following these steps you can make a start towards owning your own home. Knowing how much you need to save, where you will save it and assessing your finances is the first step.
 
Let us know how you get on and you can share your own tips with us on Twitter and Facebook.

Have a look at the second saving guide for when you’re ready to start Sacrificing to Save.

Updated January 2021
 
 

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