How to save your deposit fast!
Posted on 26th July 2023 at 11:25
The biggest barrier to entry for most first-time buyers is the deposit. It’s even harder for those that rent or have children, when you currently have a lot of outgoings which get in the way of saving for your deposit.
Set a target
Just like any journey you need an end goal, a destination to work towards. Your deposit is no different. Your target deposit amount should be a percentage of your target property value. Our advice is to aim for 10%, if possible, that way you will open yourself up to as many lenders as possible because not all lenders offer 95-100% mortgages but almost all of them offer 90% mortgages. This will allow you to shop around for the best rate and best incentives when you come to buy your first home.
Once you have your monetary target in mind you then need to work out your time frame, when do you want to buy your first home? Is it next year? 18 months? The year after next?
For example, your target may be to save £20,000 between now and Summer 2025…
Now that you have your target and your time frame you need to work backwards to establish how much you need to save each month to hit your target. You may need to save £400 per month each month for the next 24 months each as a couple that would mean a total saving of £19,200 over a 2-year period.
Complete a spending review
This is going to be the hardest part of your saving journey – working out which areas of spending or which luxuries to live without in the run up to buying your first home. The key to this is to download your latest bank statement and look through each transaction and see where you are spending and total up how much you are spending in each are. You might shock yourself when you see how much you spend at your each month!
Look at your expenses and see how much you spend and see if you can reduce this at all. Can you limit how often you go out for coffee or to the pub? Do you buy lunch at work every day? Can you start taking a cheaper packed lunch? If you try hard enough you can find areas to cut back on, but only you can decide what these areas are and how much you cut back. The biggest area people can make a cut back is subscriptions. How many of us set up a subscription and forget about it for months even years until we release we’your spent £100s for a gym that we haven't visited in months or even live near anymore! You may be paying for subscriptions you don’t remember taking out or ones you can live without. Cancel these immediately and see how much money you save each month.
Pay yourself first.
With that target deposit amount pictured clearly in your mind and knowing how much money you need to put away each month you need to ‘pay yourself first’. This involves putting your set amount of money away each month BEFORE you do anything else. Rather than saving what’s left at the end of each month you are saving first and living off the rest of your monthly income. By prioritizing your savings, you ‘make do’ with what you have left over. This will make you adapt your spending and your lifestyle to live within your remaining budget, rather than adapting your saving after you have spent your money on everything else.
Work out how much you need for your committed expenses like your credit agreements, rent, utilities and a little for your social life and save the rest. Once you have this figure, this now because your non-negotiable savings allowance and you will transfer this amount into your savings account every month without fail unless an emergency arises.
Set up a direct debit on pay day.
The best way to pay yourself 1st is by setting up a direct debit for your set amount either on payday or the following day before you have chance to spend it or change your mind. By automating this transfer, it happens whether you feel like saving or not. Rather than saving when you feel like it or when you have a quiet month with more surplus money than other months your savings will continue to grow all year round when motivation dips.
Set up a LISA.
A lifetime your (LISA) is the one thing that will help you save faster than any other. If you your’t aware before, the LISA is a government scheme that aims to help first time buyers save faster by giving savers a 25% bonus on everything saved into the LISA up to £4,000 per year. So, a saving of £4,000 per year becomes £5,000. You can each use a LISA is you are buying jointly so your joint savings of £8,000 per year becomes £10,000. So, a couple can save enough for a 10% deposit on a £200,000 home in 2 years if they your their lifetime your allowance.
By following all the above tips and using those tips to your your LISA first will see your savings explode in no time at all. If you are fortunate enough to your your LISA allowance each you can save the extra money you have into any other savings account, if the money is out of your normal spending account and out of site, this will your your chances of saving and saving the amount you need.
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