Saving for your first home

Saving a deposit for your first house or flat can seem a daunting task, particularly while house prices continue to rise. The Government's Help to Buy scheme has eased the strain on first-time buyers by increasing the amount of 95% loan-to-value (LTV) mortgages available, but even saving that 5% can require a lot of careful planning and self control. Here are some pointers to help you along the way.

Sounds like a simple place to start, right? Find out how much houses or flats are going for in the area you want to buy your first property. Keep an eye on these prices by using websites such as Rightmove or Zoopla. Once you have an idea of current prices, you'll know how much you'll need to save to get to that magic 5% mark. 

Buying a house or flat isn't just about the deposit, though. You'll need to think about other costs as well, such as legal fees, survey fees and any upfront mortgage fees. Look at current 95% mortgages and associated fees, and maybe even ask a local solicitor how much you might have to pay in fees. Total your deposit and the various fees/taxes and you'll have the amount you're going to need to save.

Sit down and itemise all the money you have coming in and going out. How much can you afford to save every month? As your end goal is likely to be a challenging one, you'll probably need to set a fair proportion of your monthly income aside. This might mean restricting the amount you spend on nights out or other luxuries. Make sure the amount you commit to isn't unrealistic, however. It's going to take a long time to save, so you’ll want to avoid getting too stressed and unhappy in the meantime.

From what you can comfortably save, work out how long it will take to get to the figure you need. For example, if the amount you are trying to save is £9,000 and you can afford to save £300 per month, then you're looking at about 30 months, or two-and-a-half years. Don't be put off by how long it may take – as the Chinese philosopher Lao Tzu once said: “A journey of a thousand miles begins with a single step”.

When saving for your first home you're going to need a savings account that allows you to contribute to it regularly. A regular savings account could be a good option for those just starting out, as it could give you the kick-start you need to reach your goals. However, once you have a decent pot of money together, you’ll need to start thinking about where you can get the highest interest rate – preferably without paying tax.

For guaranteed tax-free savings, there’s cash ISAs to consider. However, even with non-ISA savings accounts you can earn up to £1,000 per year interest without paying tax (if you are a basic rate taxpayer). And as ISA rates tend to be lower than non-ISA ones, it might be worth looking at these first.

You may also want to consider the Government-funded Help to Buy ISA or Lifetime ISA, which both give you a 25% top-up on the amount you save, provided you put the funds towards your first home (or your retirement, in the case of the Lifetime ISA).

Whichever savings account or cash ISA you go for, make sure to regularly review the rate, particularly if you choose a variable rate deal. Some accounts have a rate that is partly made up of a bonus, which will normally fall away after 12 months, reducing the amount of interest you receive thereafter.

We all hate bills, but we all know they have to be paid. If you treat saving like a bill by setting up a regular payment, you'll soon get used to not having the extra cash in your bank account each month. Most savings accounts will let you pay in every month via a standing order or direct debit, so you won't even need to remember to make the payment. However, you will have to ensure you've got enough in your bank account on the date the payment goes out.

House prices can change considerably, even in a relatively short space of time. You could face the frustration of getting all your money saved, only to find you haven't quite got enough to buy a property. 

You'll need to be patient – and flexible. Keep a regular check on house prices in your area and keep reviewing your savings plan. You might have to save more each month, or accept that it's going to take longer to achieve your goal. You might even consider compromising on the type of property or the area you want to buy in. 

Of course, this all assumes that house prices will continue to go up – there is the possibility of them levelling out or even coming down. And if that happens, you could be in a position to buy a little earlier than you expect!