The challenge of saving up for a mortgage deposit is often said to be the biggest hurdle faced by most first time buyers today.
According to data released by Land Registry, the average price of a property in the UK is £232,944 as of October 2019. And with most mortgage lenders requiring a minimum 10% deposit, that figure would mean you’d need to put down at least £23,294!
Unless you’re lucky enough to get some help from your family, earn a fortune or win big on the lottery, that means you need to get saving… hard.
But, you’ve decided now is the time to do it!
So what can you do to save your pennies and get started on your journey to becoming a brand new homeowner?
1. Open a Lifetime ISA
The government’s Lifetime ISA (also known as a LISA) is a great option for all first time buyers to consider, as it gives you the chance of earning an additional 25% on top of your deposit!
The LISA is only open to first time buyers and it allows you to save a maximum of £4,000 each tax year up until the age of 50.
The government will add a bonus of 25% to your savings up to a maximum of £1,000 per year!
For example –
- If you were to save £2,000 in a year, you would earn a 25% bonus of £500 bringing your total to £2,500.
- If you saved the maximum amount of £4,000 in a year, you would earn a 25% bonus of £1,000 bringing your total to £5,000.
You can read more about the Lifetime ISA here!
2. Clear any outstanding debt
It’s sensible to clear any outstanding debt you have before saving for a deposit.
If you have a large credit card bill or have recently fallen behind on a few monthly payments, ensure you clean these up before putting your money away each month.
When searching for a mortgage, lenders will look to see how much debt you currently have and, depending on the result of this, it could impact your affordability or eligiblity when trying to secure a mortgage.
If you have a poor credit rating, read my guide Can I Get A Mortgage With Poor Credit? to see what options could be available to you.
3. Stop unnecessary spending
We’re all guilty of buying certain luxuries and items we don’t really need. Whether it’s buying new clothes or something you spotted during your “quick visit” to the shops, you’ll need to reign in your spending if you’re serious about saving for a deposit.
I recommend sitting down with at least six months worth of bank statements and looking to see where you can save money – no matter how small it may seem! You might find that you’re spending too much in some areas and this will help you identify where quick savings can be made.
4. Consider switching from your current energy and utility providers
You may find that some decent savings can be made if you shop around for better energy and utility deals.
Your current provider may not always offer the best value for money and most have a tendency to move you to a standard, less competitive tariff once your promotional deal ends.
When you consider you’ll usually pay towards gas, electric, broadband, TV and mobile phones contracts as just some examples, the pounds could soon start stacking up!
5. Find somewhere cheaper to live
It may be some time before you’re in a position to buy your first property, so I’d recommend giving some serious thought to your current living situation.
By downsizing from your current property or by getting a housemate who you can split the bills with, you will easily save money here.
If you’re currently living at home with your parents – ask yourself whether it’s possible for you to stay long term. Whilst your parents may charge you to live there, it’s likely to be considerably cheaper than running your own home!
6. Sell any unwanted items
You can easily add a decent one-off lump sum to your savings by selling some belongings you no longer need.
Whether you choose to sell some stuff online or try your hand bargaining at a car boot sale, people will reach deep into their pockets for things that may no longer be of use to you.
7. In addition to a LISA – open a savings account
If you’re fortunate enough to save in excess of the yearly £4,000 LISA limit, you may want to consider opening an additional savings account to benefit from the best interest rate possible.
Remember – your current bank account provider may not always offer you the best deal possible!
As always, I recommend searching the wider market and comparing what’s on offer before you decide who to open an account with.
Are you looking to save towards a deposit in 2020? Share this guide and your tips and advice in the comments below!