When you’re renting it can feel like your dream of owning your own home is unachievable. This doesn’t have to be the case. There are many ways to cut spending and save a healthy deposit, meaning you could be buying your first home sooner than you think.
Reduce unnecessary spending
The first key step in saving a healthy mortgage deposit is assessing your current spending. Even if you think you are mindful with your money already, take a look at where you could save even more here and there to make your deposit grow faster.
For example, if you eat out often or buy your lunches rather than preparing meals for work, you could be spending hundreds of unnecessary pounds on food. We’ve got lots more tips for cutting back on your spending in our mindful savings habits article.
Move back home
Although it may seem like taking a step back, moving back in with your parents could help you to move forward with your first home much faster. If mum and dad have the room to spare, living with them temporarily could give your saving power a huge boost, as you could save the money you have been spending on rent and bills. It shouldn’t take long to save a healthy deposit and buy your new home.
If moving home isn’t an option, consider temporarily moving in with another family member or friend and paying a fraction of what you have been paying for rent and household bills. Alternatively, even downsizing to a smaller rented property, such as an apartment instead of a house, could cut your payments and leave you with more spare cash to save.
Borrow from bank of mum and dad
It’s not uncommon for children to take loans from parents or other family members to help them to get onto the property ladder quicker. A survey from the Council of Mortgage Lenders reveals that 80% of under 30s have relied on money from parents to save a deposit for their first home.
But don’t forget, if your parents are lending you the money it will need to be repaid at the same time as your mortgage, so sit down with them and consider an affordable repayment alongside the mortgage repayment and other costs associated with buying a new home.
Open a Help to Buy ISA or Lifetime ISA
Depending when you want to move and how much you can afford to save per month, there are two government-funded ISA savings accounts ideal for first time buyers.
The Help to Buy ISA allows you to save a maximum of £2,400 per year, that’s £200 per month, plus you can deposit an extra £1,000 in the first month of opening. If you withdraw the savings to buy your first home, you will receive a 25% bonus up to a maximum of £3000 from the government. There is no limit on how long you must be saving for, so if you’re planning to buy a home in the next 12 months this is the best option for you.
The Lifetime ISA (LISA) allows you to save a maximum of £4,000 per year, that’s around £333 per month, and you’ll receive a bonus of 25% of your savings paid on a monthly basis. The LISA must be open for 12 months before you can withdraw your savings to buy a new home, so this is a better option for those who know they will be saving for more than 12 months.
With either the Help to Buy or Lifetime ISAs, every first-time buyer is entitled to the bonus. So, if you’re buying a new home with another first-time buyer, they can have their own separate savings account and earn the 25% bonus too.
Use the Help to Buy Equity Loan scheme
Another government-funded scheme which helps both first-time buyers and current homeowners is the Help to Buy Equity Loan, which allows you to buy with as little as 5% deposit.
You borrow 20% of your new home’s value as an equity loan from the government, which is interest free for five years and then you can arrange to repay it in instalments or as a lump sum after that. This means that your mortgage is just 75% of the value, meaning your monthly payments for the first five years will also be significantly reduced, allowing you to afford to buy your new home sooner than you think.
Use the Home Reach part-buy part-rent scheme
Home Reach is a government-backed scheme that allows you to buy a 50-75% share of your new home now, while renting the remaining share for a small monthly fee until you’re ready to buy outright.
With Home Reach, you only need a 5% deposit based on the share that you are buying. So, if you were to buy a 50% share of a £200,000 home, you would only need a £5,000 deposit. This means you could have the deposit needed to buy your new home much sooner than expected.