nigel woollsey

Nigel Woollsey

Online Writer
Published: 13/11/2019

At a glance

  • First, figure out how much you will need to save up for a deposit and how much you can afford to set aside every month.
  • Then, find the best savings account for your needs, or even consider having several, including the Help to Buy or Lifetime ISA for their Government bonus.
  • Keep saving until you reach your goal, checking house prices on a regular basis, and don’t forget about extra costs such as legal fees.

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.

1. Know how much you need to save for the house you want

Do your research and find out how much houses and flats are in the area you want to buy. You can use Rightmove and Zoopla to see current asking prices and you can even see how much property has actually sold for on the particular street or area where you want to buy. You can then calculate how much your 5% deposit would be.

But, 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.

Since November 2017, most first-time buyers in England and Northern Ireland will no longer have to worry about stamp duty, as the Government has decided to abolish this tax for those looking to purchase a first property worth up to £300,000 (with 5% of the purchase price payable up to £500,000). Wales and Scotland have their own alternative arrangements for first-time purchases.

2. Set a budget and a timeline

Sit down and itemise all the money you have coming in and going out. How much can you afford to save every month? You can then see how long it will take for you to achieve your savings goal. If the time period is too long, then you should consider if you can increase your earnings or make some compromises and reduce your spending. We suggest eight ways you can boost your savings with cost-saving and money-making ideas below.

Reduce your costs, earn more and boost your savings

  • Switch to a discount supermarket and buy supermarket own brands.
  • Reduce fuel costs and cycle or walk to work – if it’s too far then try lift sharing to reduce your commuting costs.
  • Sell the stuff you don’t use anymore – whether it’s a car boot or through an online auction, your old items can earn you money.
  • Work a little more; accept overtime, if your main job allows it, consider a second job or freelancing in the evenings and weekends.
  • Reduce your current rental costs – how much more could you save each month if you moved back in with Mum and Dad? Or can you share with a partner or friend?
  • Switch to a new – you can now earn hundreds of pounds by taking out a new current account.
  • Use a cashback site – valid purchases will then earn you money back!
  • Get a cheaper deal on your mobile, broadband and utilities – this can save you hundreds of pounds.

3. Get free cash from the Government

The Help to Buy ISA helps you to save towards your deposit from scratch. You can save up to £200 per month and benefit from a 25% Government bonus, up to a maximum of £3,000 over the years. And since it's an ISA, you won't have to pay any tax on the money in the account. Moreover, if you are looking to buy with a partner, you can both get a Help to Buy ISA and the related Government bonus.

The Help to Buy ISA is available until the end of November 2019, when the main Government-backed scheme to help save for a first home will be the Lifetime ISA.

The Lifetime ISA allows you to save with a 25% Government bonus up to the age of 50, which can be used either for buying your first home or retirement. You have to be under 40 to apply. 

Note that at the time of writing (October 2019) there is still only a handful of cash Lifetime ISAs available. If you instead opt for a Lifetime ISA of the stocks and shares variety, remember that you’ll be risking your investment on the stock market. While this could result in great profit, you could also end up with less than you put in.

Moneyfacts tip: You should only invest in one of these Government backed schemes if you are sure you will only want these savings for the purpose of your first house deposit or for your retirement (only in the case of LISA). If you need your funds for any other purpose, then you will receive a penalty. 

4. Find the best savings account

Once you have opened the Government-backed savings schemes for first-time buyers, you can then consider which type of savings account will work best for you and deliver the greatest return in interest. Here are some options on savings accounts:

regular savings account is a good place to start building your savings fund.

These savings accounts usually work on a maximum monthly payment that needs to be made every month for 12 months. Your balance starts at zero, and then increases each month.

If you have more each month to save than is allowed in your regular savings account, then consider easy access savings accounts. These allow you to add payments whenever you choose, and generally to withdraw money as and when you want – although some will have a maximum number of withdrawals that you can make. Notice accounts generally offer higher rates of interest than easy access, but you cannot access your funds immediately – instead, you will need to wait for a specific number of days before funds can be withdrawn.

Once your savings pot has grown, you can start to consider fixed rate bonds. You can usually open these from a balance of £500, however some will require a £1,000 or even £10,000 minimum deposit. Fixed rate bonds can pay more in interest but often restrict you to one initial deposit only and most will not allow you to withdraw your cash before maturity. However, if saving is a long-term goal and you have no need of early access in the first year or two, these can be attractive.

Guaranteed tax-free savings

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.

5. Set up a regular payment on payday

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.

6. Keep close to house prices

House prices do fluctuate and this could mean that either you need to save more or that you could buy sooner than you expected.

Moneyfacts tip

Moneyfacts tip nigel woollsey

You may also want to consider the Government-funded Lifetime ISA, which gives you a 25% top-up on the amount you save, provided you put the funds towards your first home or your retirement. 

Disclaimer: This information is intended solely to provide guidance and is not financial advice. Moneyfacts will not be liable for any loss arising from your use or reliance on this information. If you are in any doubt, Moneyfacts recommends you obtain independent financial advice.

man handing over keys

At a glance

  • First, figure out how much you will need to save up for a deposit and how much you can afford to set aside every month.
  • Then, find the best savings account for your needs, or even consider having several, including the Help to Buy or Lifetime ISA for their Government bonus.
  • Keep saving until you reach your goal, checking house prices on a regular basis, and don’t forget about extra costs such as legal fees.

Cookies

Moneyfacts.co.uk will, like most other websites, place cookies onto your device. This includes tracking cookies.

I accept. Read our Cookie Policy