How to Save for a House Deposit

As a twenty-something girl renting in the capital, getting my foot on the property ladder seems like a distant dream. With the average price of a one bed property in my part of London now hitting around £277,000, I would have to cough up a deposit of over 27k in order to afford a 10% mortgage. Yikes.

Yep, recent research carried out by Shelter showed that average earners in England would need to more than double their salary to keep up with soaring house prices. So how could an ordinary girl like me ever hope to save enough money to put a deposit down on a place of my own? Well, that’s what I’m going to investigate.

Take a deep breath and start budgeting

Budgeting is horrible. No one really wants to have to stop buying their morning cappuccino from Starbucks, start bringing in packed lunches to work and giving up holidays in the sun, but apparently this is what it’s going to take to start building up a nice little nest egg. Working out how much you need to save is the first step on your journey to owning property- to save £27,000 from scratch I am looking at putting aside £600 a month for 3 years and 9 months, or £300 a month for 7 years and 1 month. Neither is particularly appealing.

So, how am I going to find an extra £300 a month? One option is to look at changing my rent (more on this later), but other solutions include using a comparison website to see if I can lower the cost of my insurance policies and bills, as well as getting a set amount of cash out at the beginning of the month rather than using my cards. At any rate, it is important to make sure that your budget is realistic and not causing unnecessary stress- otherwise you will have a very unpleasant 7 years of saving. Bring on camping in the UK!

Financial experts seem to agree that a Cash ISA (Individual Savings Account) is the best place to put your hard earned money. The interest on a Cash ISA is not taxed, so all the interest you earn you can keep. Every tax year you are given an ISA allowance, with this year (ending April 2014) capped at £11,520; you can save up to £5,760 in a Cash ISA with the remainder in a stocks and shares ISA (investing in funds, bonds or individual companies). Sound confusing? Yeah I thought so too, but it is well worth carrying out some research and getting your head around the concept- your money really will work harder for you in an ISA.

Another great tip I found is to treat your saving process like you would treat paying a bill. So instead of manually transferring that £300 a month over to my Cash ISA, I’m going to set up a standing order for it to come out as soon as I’ve been paid (this way I won’t be tempted to blow any of it on a new pair of shoes or dinner out!)

London is notorious for its high rent prices, and my house share is no exception. For the privilege of a double bedroom above an appliance shop in zone 2 I am forking out nearly £600 a month. Ouch. With bills and council tax on top of this, around £700 of my monthly salary is eaten up as soon as payday arrives. To improve this pretty dire financial situation I have a few options:

• Move back to my parent’s house. This isn’t feasible for me, but if you are lucky enough to have family with available space living near you then you really need to take advantage – even if it’s only for a period of 6-12 months.
• Move in with friends. If you have mates living in your city with a spare room and looking for a bit of extra cash, now could be the perfect time to become a lodger.
• Move into shared housing. I’m already sharing with two other friends, but this could be a good move for those of you renting on your own or with your partner.

Paying rent and saving for a deposit is a bit of a catch-22 situation, but it’s by no means impossible- you just have to downsize for a while (and potentially revert back to being a teenager living with mum and dad!)

With all the budgeting and downsizing in the world, saving up £27k is not exactly a walk in the park, and it might be that I need to use a little extra help in order to reach my target. Here are some ideas and links for more information:

• Use a government scheme like First Buy
• Borrowing money from the bank of mum and dad
• Finding a guarantor
• Using a shared ownership scheme

Oh I forgot to mention, the hefty prices won’t stop at the £27,000 house deposit- I’ve got the legal fees and stamp duty to contend with on top of that. Stamp duty is an absolute beast. Buyers are charged 1% on properties worth between £125k and £250k, 3% on properties between £250,001 and £500k, and 4% on those between £500,001 an £1m. This means if I were looking at a property and its price increased by £1 to above the £250,000 threshold, my stamp duty bill would rocket from £2,500 to £7,500.

But according to a recent article in the Telegraph, some buyers are using very clever means to avoid going over the threshold. I could, for instance, offer to buy the seller a car or pay for their childcare fees for a year if they were to give me price under the stamp duty threshold. Other options include paying separately for fittings and fixtures. I’m not sure I would recommend this as a method for lowering the costs of buying a house, but it is certainly something to look into if you feel it might suit you.

If all this hasn’t put you offering saving for your deposit, fantastic! I’m off now to go and look at £1m mansions on Rightmove… a girl can dream can’t she?