Last updated: 23/07/2020 | Estimated Reading Time: 4 minutes
Saving money for a house
Buying a house is likely to be the most expensive purchase of your life. It’s therefore often very daunting to begin saving. Banks and building societies have a responsibility to ensure you can genuinely afford to repay your mortgage making it difficult for some people to borrow. Competitive mortgage rates are usually only available with a 25% deposit so saving for the really is important. This may mean you have to work harder to save money for a house. Our guide will take you through how to start saving, how much to save and where to put your money to make the most of it.
In This Guide:
- How do I start saving for a house?
- How much should I save?
- When should I start?
- Where do I put my savings?
How do I start saving for a house?
The best way to start saving for a house is by setting a goal for yourself. This means looking at property prices in the area you are hoping to buy as well as setting a realistic budget for how much you can afford to repay each month. This will help you set a savings target.
Once you have set yourself a goal the easiest way to save is to set aside a set amount of money as soon as you are paid every month. It’s important to be realistic about how much you can afford to save. Looking at your previous spending habits can be a good way to set a realistic budget.
You may also find it helpful to look at your outgoing spending and cut down on any non-essentials. Buying second hand and own-brand items can be a good way to save money without cutting too much. Be careful not to restrict yourself too much as you may actually find it even harder to save!
Once you start saving you should prioritise paying any debts. Outstanding balances on loans or credit cards can affect your application so you will want to clear or reduce them as much as possible. You will need to save for your deposit as borrowing money is likely to mean lenders decide if you can or cannot afford a mortgage.
A stable spending history is also important for a successful application so it’s a good idea to monitor your spending in advance of your mortgage application.
How much should I save?
How much you decide to save will depend on how much you can afford to repay each month. The minimum deposit required by lenders is 5% so you will need to save at least this much.
If you cannot afford to make large repayments each month saving for a larger deposit will make your monthly repayments lower. Even if you can afford higher monthly payments, you may want to save for a larger deposit to give you access to the .
Remember you will also have to save for stamp duty, moving costs and legal fees. Make sure you factor these costs into your saving goal as well as your deposit.
When should I start?
The bigger your deposit the lower risk you are to lenders. This means your mortgage application is more likely to be accepted. A higher deposit will also give you greater access to . It’s therefore a good idea to start saving as soon as possible.
The key to saving a larger deposit is to prioritise saving for your home as early as you can. The sooner you start planning the sooner you can start looking for your new home.
As soon as you can, set yourself a saving goal and start setting money aside. It's a good idea to put money into your savings as soon as you are paid each month. If you never see the money you are less likely to miss it!
Where do I put my savings?
Where you put your savings can make a difference to how much you are able to save. Look for savings accounts with higher interest but watch out for terms and conditions that restrict your access to the funds.
Regular savings accounts often have high interest rates. If you are saving for a short amount of time these can be the best place to put your money. You are typically required to pay a set amount of money every month for a 12-month term. You usually cannot withdraw your money until the 12 months are up.
If you are saving for less than a year then you may want to consider an easy access account. These are more flexible and allow you to access and add to your money whenever you need to but the interest rates are often much lower than a regular savings account.
Most first time buyers will need to save for more than a year. Cash ISAs can be a great place to start as the interest earnt is free from income tax. This does mean there is a cap on how much you can put in an ISA. For 2019/20 the maximum is £20,000.
The government used to run a Help to Buy savings scheme but it is now closed (as of 2019).
Saving money for a house can be a daunting task but by prioritising your savings and making a realistic plan you can get yourself access to the