How Can You Save for a Deposit on a Home?

Mortgages & Money

Many budding homebuyers find themselves unable to secure a mortgage because they don’t have a large enough down payment. Many savers are currently renting, and so saving money for the opportunity to purchase a home might seem like a big task in today’s harsh economic environment. If you feel this, don’t worry. You are not alone. For many, it is by no means a simple task to save for a deposit, but there are some things that you can do to make the process of raising a deposit a little less daunting. To help you put up a reasonable deposit, we’ve put together a list of some of the things you can consider doing.

Consider all the possibilities

Some first-time buyers won’t be able to save enough money for a down payment, but that shouldn’t put you off from investigating and considering all of the options that might lead you to homeownership. Saving up a 20% deposit is a challenge even for higher earners, so let’s take a look at what options you could think about pursuing to help you achieve your goal.

Pool resources and buying power with others

While it may be your goal to own your own house, it is possible to get started on the property ladder by pooling your resources with family members or even friends. In spite of the fact that there are certain important aspects to keep in mind if purchasing in this way, like if someone wants to sell their portion down the line, purchasing a property with several individuals is an excellent way to begin your journey toward homeownership.

Borrow the deposit while avoiding the banks

If you need to borrow money for your deposit, you may not need to go to the bank. If you need to borrow money for your deposit, you may not need to go to the bank. “Bank of Mum and Dad” is a term that has become increasingly common in recent times, and for good reason. Taking out a loan from a friend or family member (or several) can save you money and give you the head start you need in the property market.

Ask someone to be your guarantor

For certain mortgage providers, someone who can guarantee that someone else will pay the mortgage in the event of a financial emergency will have a much better chance of securing a good deal with a lender. In this case, parents are often the go-to choice, but you can effectively have anybody agree to be your guarantor if they are happy to do so.

Shared equity

Shared equity-based schemes are another way to consider, and many people take them up. Here, you may purchase a new-build house with a modest deposit, frequently as little as 5%, thanks to shared equity programmes like Help to Buy. Loans of up to 20% can be obtained from the developer or government if you do not have enough money saved for your deposit. Since saving for a deposit is often the biggest stumbling block that many face, these shared equity schemes were introduced to help first-time buyers get a foothold in the homeownership market.

Of course, all loans will have to be paid back at some point, but for the first five years of the term, these types of loans are normally free of charge. This will normally give homebuyers the time they need to get on their feet and prepare. So, if you’re unable to put together a complete deposit, these schemes might be a wonderful way to enter into the housing market.

Help-to-Buy scheme

The Help-to-Buy scheme option can be a good choice for many. Unlike the shared equity option, which is focused on new build homes only, if you’re looking to buy either an older or new build property, you may take out a mortgage that functions in the same way as a normal mortgage. Because your lender will have the option to purchase a government guarantee on your mortgage, they will be able to give you a greater loan-to-value mortgage than they would otherwise be able to. If you are thinking of or interested in going down this path, click here to see more.

Shared ownership

Shared ownership is exactly what it sounds like: you and a third party, generally a housing association, share ownership of a portion of your home. You pay on the mortgage portion that you own and rent on the portion that the third party owns, typically at a discounted rate. To be qualified for shared ownership, you must fulfil a set of requirements, which are outlined in full here.

Determine your level

To get a better idea of the amount of savings you will need before you can even contemplate owning your own property, look into all of your options. Once you break things down and arrive at a solid figure in mind, things become a lot clearer—and, therefore, achievable—and the route to accomplishing your saving objective may not seem as intimidating.

Being realistic is essential when creating a savings strategy if you want to keep on track. If you say that you’ll save £1200 a month, you will get there faster in theory, but if that amount is going to be too much for you, you will likely give up before you are even close to reaching your goal.

In today’s fast-paced world where many want instant results, it may feel like an eternity to increase your savings term from two to six years. I can say with certainty, however, it is important to keep in mind that adhering to a realistic savings strategy will always lead to faster outcomes than any savings programme that yo-yos up and down.

Decide on where you are going to save

The next step is to choose a dedicated savings account for your hard-earned cash once you have determined how much money you can put aside each month. In order to maximise the value of your savings, it’s essential to perform a little research beforehand.

Fortunately, doing this kind of research has never been easier thanks to a slew of comparison websites, so you can find the best deal possible. Having said this, keep in mind that many of these sites are administered by the same parent corporations as their recommended lenders; you’ll need to visit more than one to get a real picture of what savings accounts are ideal for you.

It’s important to keep in mind that not all savings accounts offer the same features, and so you will need to shop around to find one that fits your needs. Before you jump into your choice of account, make sure to read the fine print and, if you have any questions, get in touch with the account provider to clarify anything you need to know.

Make sure to consider Lifetime ISAs in your planning

Lifetime ISAs are a great type of individual savings account and are ideal for first-time homebuyers. Anyone over the age of 18 who has never purchased a home is eligible to open one.

According to the UK government:

You can use a Lifetime ISA (Individual Savings Account) to buy your first home or save for later life. You must be 18 or over but under 40 to open a Lifetime ISA.
You can put in up to £4,000 each year, until you’re 50. You must make your first payment into your ISA before you’re 40.
The government will add a 25% bonus to your savings, up to a maximum of £1,000 per year.
You can withdraw money from your ISA if you’re:
- Buying your first home
- 60 years of age or older
- terminally ill with less than 12 months to live
You’ll pay a withdrawal charge of 25% if you withdraw cash or assets for any other reason (also known as making an unauthorised withdrawal). This recovers the government bonus you received on your original savings.”

Get the ball rolling and make a deposit

By this stage, you are ready to get the ball rolling, and all that is left to do is get started with making your first deposit. Every great and challenging journey starts with making the first step, and once you have, everything changes. Your vision is starting to take tangible form.

In order to ensure that you don’t miss a payment into your savings account, it’s best to set up a standing order. Things will get more familiar after a time since you’ll grow accustomed to the fact that money is moving out of your bank account on a regular basis. Once you have adjusted, you will likely find that you don’t miss that money as much as you thought you would.