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How to save a deposit for your first home – 9 simple steps

If you want to save a deposit on your first home, you’ve come to the right place.

Saving a deposit for your first home is tricky for pretty much all of us. It takes time, patience and some sacrifice, but when you slide the key into the lock that first time? Worth it. 

To get you started, this is your step-by-step guide to help you smash your savings goals and get you well on the road towards home ownership. I’ll give you some extra tips along the way to help you reduce how long it takes to save for a house.

And you can get help in the form of free money too! I’m going to point out some of the places you should be getting it, to give you that extra boost.

It’s going to take time and potentially some sacrifice on your side. But there’s no better feeling than seeing your deposit savings grow and knowing you’ll be able to achieve your ultimate goal.

How to save for a deposit for your first home

The key to saving for your first home is increasing the gap between your income and your spending.

Obvious? Yes. Crucial? Definitely. 

This is the number one task you should set yourself, and there are two ways to go about it:

  1. Cut your spending
  2. Increase your income

Both can be tricky, but they’re definitely not impossible.

The larger the gap between your income and your spending, the more you can save. And the more you can save, the quicker you can achieve your goal and get those keys.

The gap between your income and spending, when stashed away, is often called your savings rate. For example, if you earn £2,000 per month but only manage to spend £1,800 you’ll be able to save £200 per month. This means you have a savings rate of 10% of your income.

So, what’s your savings rate?

Heads up – We aim to produce honest and accurate content, however, we are not financial advisors. If you need financial advice, Unbiased can connect you with a suitable professional for free. Some of our links may earn us a small commission to help us run the site.

Step 1 - increase your income

First up – and the quickest way to boost your savings rate – is to bag yourself a pay rise!

In personal finance, a bigger income is better. The more you can earn, the quicker you can pay off debt or save. As long as you don’t spend that extra income, of course, but we’ll come on to that in a moment.

Earning a pay rise can be tricky. So, we’ve written a guide below to help you do it.

The key is simply to be confident. You’ve got to be prepared to seek out new employment and also face those awkward conversations with your current employer. With a little proactivity, you’ve got this in the bag!

Alternatively, consider a second job, or ‘side hustle’. This may be a food delivery driver, doing surveys or working in a bar. The long hours may suck, but remember, it’s short term. This is what we mean by sacrifices. How much do you want that house?

How to get a pay rise – 10 steps to ensure success

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Step 2 - get an awesome budget

Before we start cutting things out of your budget you’ll need a good financial budgeting system.

I don’t mean boring spreadsheets (although maybe I do love that part…just a little bit). I’m talking about budgeting like a pro. If you haven’t already, you must get into an awesome automatic budgeting system. Now is the time!

Our free guide below takes you through easy, doable steps to set up an awesome system that will help you easily budget…without spreadsheets.

Budget like a Pro in Seven Simple Steps

Step 3 - reduce your spending

Surprisingly, people tend to struggle more with saving money than asking for a pay rise.

It’s easier to control how much you spend than the amount you earn. So, this is where the tough decisions and sacrifices come in.

Simply put: the less money you spend, the bigger the gap between your income and spending gets. The bigger the gap, the quicker you can achieve your goals.

Remember, buying a house is your number one goal. You may have to forgo a few holidays or cut down on your nights out. But it’ll be worth it.

Listed below are our most popular money-saving articles below. These cover some common and quick ways to cut your outgoings fast, give them a go if you could be saving more.

68 money-saving top tips – save £12,419 a year!

9 ways to save money fast!

How to save money on your energy bills – 10 easy steps

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Step 4 - where to save your money

Open a LISA account and get free money towards your house!

Now that you’re saving some additional cash for your deposit, you’re going to need to put it somewhere. A Lifetime ISA (LISA) is a great starting point. Why? Money put into a LISA gets topped up by the government meaning you can build your deposit quicker.

Here’s how LISAs work

You can deposit up to £4,000 per year into a LISA.

Any money you deposit will receive a 25% bonus from the government. That’s an amazing £1,000 per year bonus!

Additionally, if you’re buying with a partner, you can both have a LISA, which means double the savings.

However, there are a few catches.

  • You must be a first-time buyer (or one of you must, if buying jointly)
  • You must have opened and deposited some money into your LISA at least 12 months before you buy.
  • The home you buy must be under £450,000.

Meet the criteria? Have a look at our guide to LISAs below.

Lifetime ISA – there is such a thing as free money

Premium Bonds - safe, plus a chance to win

Another favourite for those looking to save a deposit is Premium Bonds.

These offer you the chance to grow your savings by winning. Each bond costs £1 (minimum £25 deposit) and gives you entry into a monthly draw to win cash prizes. Unlike the lottery, you don’t lose your original stake either.

You can stash away up to £50,000 in Premium Bonds and all prizes are tax-free. Prizes start at £25 and increase all the way up to the top prize of £1,000,000. The chance of winning any prize is 24,500 to 1.

Just remember, winnings aren’t guaranteed. The more Premium Bonds you hold the more chances you have to win. By comparison, a savings account guarantees a reliable percentage return, usually paid monthly or annually.

If you prefer guaranteed income, stick to a savings account with the best interest rate you can find..

Interested in Premium Bonds? Find out more in our head-to-toe run-down here:

Premium Bonds – will they make you rich?

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Step 5 - your Money Mindset

Many people struggle to save. It’s a habit we’re not often taught.

Like all habits, the discipline of saving must be strengthened over time. One of the easiest and quickest way to get started is to use the method below:

  • Start small – set up a standing order to transfer £10 to your savings account. This needs to come out the day after payday.
  • Add resistance – Use a savings account from a different bank to add resistance and make it harder for you to withdraw your cash. Additionally, it keeps your savings out out of sight making it less tempting to spend. (Marcus usually provides good rates)
  • Build – Set a recurring reminder to prompt you to review your standing order. Try to increase this amount each month or two. Do this until it becomes a little uncomfortable!
  • Track – Set up a spreadsheet or use smart banking apps with ‘pots’ such as Monzo or Starling and track your savings. Document how much savings you have each month. This will help keep you accountable and prevent you from withdrawing your cash.

Step 6 - get aggressive with your savings

Remember how you looked at your budget before? If you want to speed up the time it takes to build your deposit then you’re going to have to look at those expenses again.

It’s time to cut the non-essentials.

The more aggressive the cuts you make the more you can save. The easiest way? Start with your highest expenses and work your way down. Here are most people’s top five costs that can be cut:

  • Rent – can you move to a cheaper place, house share or even move back in with family? Rent is usually the number one expense and making a saving here is going to have a huge impact. Yes, it won’t be cool living with your folks but remember, it’s only for a short time.
  • Cars – if you have a car loan, hire purchase or lease it’s time to make a change. What’s more important, driving a nice car or owning your own home? Could you buy something cheaper and cut that monthly cost to improve your savings rate?
  • Food – cut those meals out and takeaways now. Yes, it’s great to eat out, but at what cost? It’s time to learn to cook and make packed lunches so you can own your dream home sooner.
  • Utility Bills – there’s a surprising number of ways you can cut your utility bills. Check out our energy savings guide to help lower your bills – How to cut your energy bills.
  • Memberships and Subscriptions – yes, that monthly sock membership has to go. Check your subscriptions and cut anything you can. Got an expensive gym membership? It’s time to cut that back to a cheaper plan or move to a different gym.

Step 7 - find a great mortgage broker

A great mortgage broker can save you thousands and provide you with solid advice on how best to plan for your new house purchase.

When the time comes to look for a broker, ask friends for recommendations. You’re looking for someone who’s trusted and has a proven track record.

Yes, you could find a mortgage deal yourself over the internet but you may never know all the options available.

Most brokers charge no upfront fees, so even if you don’t use them there’s nothing to lose.

Not sure how to find a broker? Check out Unbiased or join our Facebook community and ask for a recommendation.

Step 8 - work on your credit score while you save a deposit

While you’re saving for a deposit you must check your credit score. Even with a great deposit, a poor credit score could stop you from getting your dream home.

A good credit score, coupled with a large deposit can help you get the best mortgage rates on the market. This means you’ll pay less in interest which could save you thousands over the course of a mortgage.

Use ClearScore to check your credit score for free. If your credit score is poor right now, then you’ll need our guide to get it back to an acceptable level.

How to improve your Credit Score in seven simple steps

Like building a deposit, improving your credit score takes time so don’t leave it to the last minute.

Step 9 - factor in ALL the costs

Unfortunately, moving house requires you to save for more than just a deposit. Make sure you remember to save for the expenses below as well.

  • Stamp Duty – if you’re buying your first home and it’s under £300,000 then there’s no stamp duty to pay. Anything over this amount is charged at 5%. For example, if you buy a £350,000 home, you’ll need to pay 5% of £50,000 or £2,500. You must have this money saved outright (it can’t be added to the mortgage). You can use the .Gov calculator here.
  • Legal fees – to buy a house you’re going to need a lawyer to complete the paperwork and searches required. Costs can range from £1,000 to £2,500 for a typical home. Get a few quotes from local solicitors and ask friends for recommendations. Beware, fees are often quoted excluding VAT so make sure you check as VAT will add another 20% to your quote.
  • Moving costs – if you’re going to hire a company to move your furniture then be prepared to fork out between £300 to £1,200. Larger homes could be much more. To save costs, try hiring a van and having friends help you move.
  • Extras – it’s always great to have a little spare money saved to cover any new furniture or fittings. You might want to replace items like curtains and carpets when you move in. Additionally, if you’re buying a house that needs work, be prepared to have a larger figure saved to cover those renovations.

How to save a deposit for your first home - final thoughts

Saving a deposit is going to take time. Unless you have rich and generous parents there’s no getting around it.

The key is most definitely expanding the gap between how much you spend and how much you earn. The bigger the gap the more you can save each month and the sooner you can buy your first home.

When looking to buy a house, improving your salary needs to be a top priority. A higher income can help you save more in a shorter space of time, plus it’ll leave you able to borrow more.

But just like all things personal finance related, saving a deposit for your first home is about balance. Ensure you calculate your numbers correctly, leave some wriggle room and don’t stretch yourself too far.

If you still have questions, please come join our supportive UK Personal Finance club on Facebook, where you’ll find other like-minded individuals. It’s a safe, private community where you can ask questions and learn more about making the most of your money. Best of all, it’s free! I’d love to see you there.

Here’s to your Financial Fitness.

EatSleepMoney.co.uk does not offer financial advice and is intended for reference/information only. Remember, you should always carry out your own research and/or take specific professional advice before choosing any financial products or services or undertaking any business or financial venture. If you need financial advice Unbiased can connect you with a suitable professional for free. Investments may go up as well as down and you may get back less than you put in.