As house prices continue to rise across the UK, Vivek Madlani, CEO of personal finance app Multiply AI, shares some saving tips for saving for your first home.
When it comes to getting onto the housing ladder, saving for a deposit can seem incredibly daunting. It is the main challenge to overcome before you even start thinking about applying for a mortgage, and it’s normal to feel slightly overwhelmed by the process. However, there are a number of practical steps that can help you with the process of pulling together a deposit and saving for your first home.
1. Figure out exactly how much you need to save
The first step is calculating exactly how much you need a deposit. Investigate how much property costs in the area in which you are planning to buy. Rightmove and Zoopla can help you to gauge the current asking prices, as well as recent sales figures in the street or area you are considering. This will be the key data you need to figure out how much your deposit will be. There are also other costs to factor in, including legal costs, survey fees and upfront mortgage fees, which a local solicitor should be able to help you calculate.
2. Reduce expenses by 10% across the board
You need to figure out how much you can afford to set aside in monthly savings, based on your existing income and lifestyle. If it already feels like there is not much room left to save, then an achievable savings goal can be to reduce expenses by 10% – so if you are currently spending £400 a month on food, try reducing it by £40 for a total budget of £360. While it might not seem like a significant difference when applied to a singular area over a short period of time, it will all add up when you use the technique on all-expense areas, over a longer period of time.
3. Sell old things online
Whether it’s selling a large item like an electronic gadget you don’t use any more or items like books or clothes that easily accumulate in the background, these days there are plenty of websites, from Facebook marketplace to eBay, that can help you get rid of clutter and make money from doing so. For example, Vestiaire Collective sells pre-owned fashion items while MacBack helps you sell pre-owned Apple items. A single item might not make a huge impact but when you add them all up, the total might work out to be more than you would have expected.
4. Automatically save on the day you get paid
Most people save in the worst possible way: they wait until the end of the month to see how much money they have left, before putting that away into a savings account. The smarter way to save is to do the opposite and to proactively set aside a specific sum as early as possible. An easy way to do this is to create a standing order for a few days after you get paid to make sure that those funds are being sent to a savings account or ISA on an automatic recurring basis. While at first, it might be an adjustment, after you start and get into the habit, it will soon become something that makes saving seem a lot easier.
5. Maximise your savings with help from the government
One of the most effective ways to accelerate your savings for a deposit is to learn more about the right types of accounts that can help you reach your goals. One option is to open a Lifetime ISA, which is an account designed to help first-time buyers to save faster. For example, with every £4 you save, the government will add a £1 bonus towards your first home. The Lifetime ISA enables you to save with a 25% Government bonus up to the age of 50, to be used for buying your first home or for retirement. It is available for those under 40 to apply.
Buying a house is a marathon, not a sprint, and the length of time it will take you to do so largely depends on the steps you take over a long period of time. Stay realistic about how much you can afford when saving for your first home, and make the most of potential avenues to simplifying the process.