How to save for a home

It doesn’t get much bigger for your personal finances than the day you decide to buy a home. The moment you set your sights on owning a property will have a huge effect on your saving and everyday spending. 

And since sensible money habits are a must-have for a mortgage, you’ll also be busy keeping your credit record clean and paying down any pricey debts.

The key to it all? Your deposit. This will shape the size of your mortgage, the rate of interest and how much you repay each month.

It’s a big deal for your bank account – and, no surprise, the bigger you can build your deposit, the better. For many, it will seem daunting but – with plenty of preparation and perseverance – you’ll be able to boost your savings quicker than you think.  

Our guide will help you start putting money aside, show ways to supercharge your saving, and explain what you can do if you can’t reach your target.

How much do you need to save?

There’s no easy answer to this, since everybody’s circumstances are different. But, in a nutshell, it’ll help to save as much as you can. 

Why? The more you can put down as a deposit, the less you’ll need to borrow – which reduces the amount of interest you pay back. 

It will also help get you a better rate of interest on your mortgage. 

• Is there a minimum target?

In most cases, yes – five per cent of the price of the home you want to buy. This is because the biggest mortgages you can currently get are for 95% of a property’s value. In the main, these loans are part of the Government’s mortgage guarantee scheme, and you can apply to borrow up to £570,000 for a house or £275,000 for a flat.

So for a rough minimum target of what you’d need, take the average house price in the UK. It stood at £269,945 in September 2021, according to HM Land Registry. 

This means you’d need to save up a minimum deposit of five percent of this price - around £13,500.

• What about an ideal deposit size?

There’s no ideal or recommended amount to aim for since everybody’s financial situation will differ.

But a useful rule of thumb shows that, for every five percent of your property price you manage to save as a deposit, you’ll be eligible for a cheaper mortgage rate.

So a 10% deposit will secure you a cheaper mortgage rate than if you have just five per cent. And a 20% deposit will be cheaper than if you’ve 10%, and so on.

For the average UK house price, a 10% deposit would mean a £27,000 savings target. For 20%? Aim for £52,000. 

• How long will it take to save enough? 

This is the biggest question for most – and the answer will depend entirely on you, your finances and personal situation. For example, if you’re buying with a partner and already have savings, it’ll take a lot less time than if not. Your first step is to be pragmatic with your personal finances, so ask yourself these two questions:

-How much can you realistically afford to put side each month? The more you can save, the quicker you’ll hit your target.

-Will you have enough in your account to cover a monthly standing order? If you can set this up to go out of your account shortly after your payday, it’ll help ensure you get quickly into a savings habit.

Once you’ve worked out the answer to the first question, you’ll be able to get a feel for time taken.

As a benchmark, let’s return to the £269,945 average house price and 5% deposit target of £13,500.

Say you want to buy in three years, then you’d need to save around £375 a month. Take a longer view and aim to buy in five years, then it’s £225 a month instead. Don’t forget you’d earn interest on top of the amount you saved, which could get you to your goal quicker - especially if savings rates rise.  

Start saving

The sooner you start saving, the quicker you’ll begin to build your deposit.

• Find a separate account to suit your circumstances

Ideally, you’ll pick an account that, as well as paying a competitive rate, fits in with your home-buying timeframe and need for flexibility. As well as instant access or fixed-rate accounts, you could also consider a cash ISA. You can save up to £20,000 a year (as at 2022/23) without paying any tax on the interest you earn. 

• What about tax on savings interest?
  

The personal savings allowance means that most savers won’t have to pay any tax on interest in their savings accounts. If you’re a basic-rate taxpayer, you can earn £1,000/year in interest tax-free. For higher-rate taxpayers, it’s £500.

Supercharge your savings with hacks and cutbacks

Once you’ve begun to regularly put money aside for your deposit, there are plenty of other ways you can supercharge your savings. We’ve quick and quirky tips galore which could also help you think differently about money, and make it work much harder for you.

And when there’s so much demand for your cash today, it can make it hard to save for the future. So we’ve put together five wily ways to help you build your savings without really noticing. These small savvy steps - such as rounding up pennies on your current account balance into a linked savings account - can lead to big savings and encourage you to nurture a brilliant new habit.

Try our other tips to help bolster your savings, including how to make money from your home and to check if you’re missing out on what you’re due. 

What if you can’t save up a big enough deposit?

Despite the best efforts, it can often prove an impossible task to put enough aside for the home you want. However, you may still have options to be able to get a mortgage.

Each has its pros and cons – and it’s crucial to take time to properly research the impact on you and your personal finances.

Here are some alternatives to consider:

•  Can the Bank of Mum and Dad help?
  

You may be lucky enough to have parents willing to give you a lump sum (either as a gift or loan). If so, you’ll need to tell your mortgage lender where the money came from so they can record it on your application, as part of affordability checks.

• Consider a ‘guarantor’ mortgage
  

This type of mortgage sees family or friends use their cash as a deposit for your mortgage - allowing you to borrow 100% of the house price.

If you have family or friends willing to put down 10% of the property price for five years, Barclays Family Springboard mortgage may be right for you.

•  Keen on new-build? You could try Help-to-Buy
  

If your heart’s set on a new-build, you could qualify for a Help-to-Buy ‘equity’ mortgage.

You’ll need a 5% deposit but the government then lends you up to 40% of the property value in London, 20% outside London in England and Wales, or 15% in Scotland. It does this in exchange for a share of your home’s equity. You then borrow the rest as a mortgage from a lender.

As long as the property costs £600,000 or less, you can apply if you’re a first-time buyer or if you’re moving (but only as long as you don’t own any other property).

•  See if shared ownership could work for you
  

A shared ownership scheme sees you buy a share of a home from a local housing association, and pay them rent on the rest. You can later purchase a larger chunk of your property – known as ‘staircasing’ - at a price based on the value at the time. It means you effectively apply for a smaller mortgage amount – so your deposit could be lower, too.

The scheme is open to you if you’ve an income of less than £80,000 (or £90,000 in London), are a first-timer buyer or if you’ve previously owned but can’t currently afford to buy without support.

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