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Saving for a house deposit sounds scary, right? It doesn’t have to be. With the right information and savings plan, a home to call your own could be closer than you think.
The Office for National Statistics reported that the number of residential property sales in England increased by 20.5% between December 2020 and December 2021. That’s a big jump in just one year, and there are homes for almost every budget.
But with so much information about how to save for a house, it can be hard to know where to look. That’s where the Hyperjar ultimate guide on how to save for a house swoops in to save the day.
This guide will cover the following:
- The Importance of Saving Money For A House
- How Much Deposit Do I Need To Buy a House
- Tips On How To Save For A House
- The Benefits in Owning A House
The Importance of Saving Money for a House
It won’t shock you that saving for a house deposit is essential (or at least we hope not). Saving a bit of your monthly income is a good idea, but you will need to take your savings more seriously if you want the best way to save for a house.
Put simply, if you want to buy a home in the future, you need to have savings. Here are three good reasons:
Greater Security
Saving money for a home will give you greater security in your life. A safe space to call your own that you can always sell if you need to. When you apply for a mortgage, the lender will assess your risk level and having a healthy savings pot will help.
Lower Interest Rates
The more money you have saved for a deposit, the better. This means you can apply for a lower mortgage amount and are more likely to qualify for lower interest rates. This can save you thousands of pounds in interest over the term of your mortgage.
Saving means you can take calculated risks
Having savings gives you more financial security. You can take more risks, try new things, and maximise your investment. Savings mean you can take calculated risks with less worry as you have savings to fall back on if it doesn’t work out.
How Much Deposit do I Need to Buy a House?
Usually, you’re required to put down a deposit of 5-10% of the property’s value upfront. The market has been rocky lately, so lenders are more likely to need a 10% deposit. The minimum deposit will depend on the price of the property, the mortgage lender, and personal circumstances.
It depends on the price of the property
· Not every lender is going to accept you (rude, we know!). Each lender will have specific criteria to approve your application. This is based on your credit score, income, savings, financial history, spending habits and debt.
· The deposit you need will depend on the price of the property. For example, if you are buying a £250,000 home, you could need at least £25,000 as a deposit.
· The bigger deposit you put down, the smaller your mortgage and monthly payments will be.
· Your household income, children, age and number of years you have been at your current job will be considered.
A deposit of at least 5%
A deposit of at least 5% is typically required, but this can vary for each property. This can be for several reasons:
· You’re using a government scheme.
· You’re buying an expensive property with poor credit history. In this case, you’ll need to pay more upfront to lower the risk in the lender’s eyes.
· To put you in a strong position, aim for 10% if you can. A higher deposit means a lower mortgage total, less interest, and lower monthly payments.
· Each lender is different, and some will require a larger deposit as standard practice.
· You’ll need to save extra for any fees or duties that will be added.
Depends on the mortgage broker and lender
Be honest about your position when you speak to your lender or broker. Ask them to explain how much deposit you will need to buy an average house in the UK. Shop around for the best deal or use a broker. They will find the best deal for you, but there may be an additional fee. Your circumstances will be assessed, and you will need to provide:
· Forms of ID
· Payslips
· Bank Statements (both current account and savings)
· Birth Certificate
· Credit check
Government schemes are available
There are government schemes available to support people when buying a home. A government-backed scheme is a great way to get onto the property ladder if you have a smaller deposit.
Help to Buy: Equity Loan - The Help to Buy scheme offers an interest-free loan of up to 20% of the property value (40% in London). This scheme is for new build homes and is interest-free for five years. Repayments are based on your equity loan percentage and the market value of your home at the time you want to make a repayment.
Shared Ownership Scheme – This scheme allows you to buy a share of the property and pay rent to a landlord on the rest. You can buy a share between 10% and 75% of the home’s full market value. You can buy more shares in the future and pay less rent as a result.
Lifetime ISA - You can pay up to £4,000 each year until you’re 50. The government will add a 25% bonus to your savings, up to a maximum of £1,000 per year. When it comes to how to save up for a house, you can use this money to purchase your first home valued at £450,000 or less.
Mortgage calculator
The house you want may not be the house you can afford. Not only do you need to afford the deposit and monthly mortgage payments, but the running costs too. A mortgage calculator can help. You can find these on most lender websites, and they will give you a guideline on what you’ll expect to pay.
Here’s the link to the mortgage calculators from Money Saving Expert and the Mortgage Advice Bureau.
Tips on How to Save for a House
When it comes to how to start saving for a house, you need to be realistic. You’ll need to make some sacrifices; though it’s not always easy, it’s certainly doable. Here are some tips on how to save for a house:
1. Start saving early
The sooner you start saving, the sooner you’ll have your deposit. You will be saving without realising it by setting up a direct debit into a savings account. If you saved just £100 per month for five years, you’d have £6,000. When you know where your money is going, it’s easier to save. Hyperjar shows you how much you have spent and saved clearly.
2. Reduce everyday spending
Take a moment to look at your bank statement. Are there some expenses that you could have gone without? For most of us, the answer is yes. Here are some tips to reduce your everyday spending and start saving for a house deposit:
· Plan your meals in advance.
· Use public transport instead of a car.
· Switch to unbranded products.
· Making coffee at home. This could save you almost £30 a week.
· HyperJar will help you see your spending habits clearly. Find out more here
· Switch to an interest-free credit card.
· Try the 30-day rule for more expensive purchases. If you still want it in 30 days, consider it again. This helps to reduce impulse buying and overspending.
For more ideas on saving, check out our article on 10 realistic methods to save money in 2023.
3. Tidy up your finances
To save, you will need to get on top of your finances and get your bills under control. You need to reduce your outgoings as much as you can so you have enough left over to save realistically and regularly.
· Saving means living below your means. Not always the most fun option, but focus on the future and how happy you’ll be when you get the keys to your first home.
· Split your expences into categories and create a budget.
· Cancel subscriptions that you don’t need or share the cost with roommates or partners
· Organise your finances easily with our savings jars. By tapping the app, you’ll know how much you’re spending in each category.
4. Increase your income
Increasing your income will allow you to save more and put you in a better position when you apply for a mortgage. You could do this by:
· Getting a part-time job
· Looking for a new job with a better salary
· Asking for a promotion
· Starting a side hustle
· Selling things you no longer need through sites like eBay.
5. Make extra payments
If you have spare cash at the end of the month, make extra payments towards saving for a house on top of your savings. Every small payment will add up. If you are given money for birthdays or special occasions, you could use this to make extra payments into your savings.
Managing Your Savings Account
Once you’ve set up your savings account, you’ll need to maintain it. You can build up a healthy savings account by:
· Regularly depositing funds
· Make sure that you do not overdraw your account
· Setting up a direct debit from your current account
· Try paying yourself first
· Keeping an eye on your balance
· Not transferring money from your savings account back to your current account
Conclusion
Saving for a home can be overwhelming, but we hope this guide has given you the information you need to get started. It’s about being sensible with your money and looking forward to a money-savvy future. With helpful tools like mortgage calculators, budget planners and the Hyperjar app, you can build up your house fund quicker than you might think.
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