For many of those not currently on the property ladder, the topic of deposits creates an instant sinking feeling. The average deposit in the UK is currently £32,899. If you’re looking to buy in London then that triples to £106,577. Government Help to Buy has enabled first time buyers to get on the housing ladder with just a 5% deposit. Although this has brought home ownership within reach for many it doesn’t reduce the associated cost. To get a good deal on a mortgage, most experts agree that you need to have a deposit of at least 10% of the purchase price, ideally 20%. So, how do you do it?
The argument for cutting back
The average salary in the UK is £27,000 and the current average rent is £921 a month (£1,246 in London). As Money Saving Expert Martin Lewis says,
“There are those young people who are managing their money so badly that they can’t afford property, then those who would never be able to buy without help from the bank of Mum and Dad.”
So, for many people when it comes to saving for a deposit the figures just aren’t going to add up. However, for others it may be a simple case of managing your money better. And, if you’ve already started to save, you have a little help from someone else or you’re earning above the average salary then it could make sense to look at cutting back on outgoings as a way to help you get that deposit together. These are just some of the places where savings could potentially be made:
Daily coffee – switch from your local artisan coffee shop to a cheaper brand or take your own coffee from home and save upwards of £600 a year.
Clothes – cut back on what you spend on new clothes while you’re saving for a deposit or look for bargains in charity shops. Depending on your spend you could find an additional thousand or two over the course of 12 months.
Taking your own lunch – buying lunch every day is an expense that could set you back £100 a month. Take leftovers from home and you’ll be £1,200 better off at the end of the year.
Drink less – the benefits of cutting back on alcohol affect your well-being as well as your bank account. If you’re spending around £120 a month on drinking then your annual savings total will be £1,440.
Those little luxuries – we all have luxuries that we somehow manage to justify spending money on, no matter how it impacts our budgets. Whether that’s a pricey haircut or fuel for a car that isn’t really a necessity, you know where your weaknesses lie. Saving for a deposit is a great time to reassess whether you really need the haircut or the use of the car. Could you temporarily do without in order to get that first step up on the property ladder?
Remove the impact of paying rent
When you’re trying to save for a deposit it’s often rent that ends up creating the most significant obstacle. So, increasing numbers of people are looking for other options, whether that’s moving back to a relative’s spare room or moving with someone else to split the rental cost. For an average renter the annual cost is more than £11,000 – for those in London it’s close to £15,000. So, just a year or two in temporary arrangements with less (or no) rent to pay could make a real difference.
Consider buying with someone else
Given the discrepancy between average salaries and the average property price, most people in the UK will find it hard to buy alone. This obviously benefits people in relationships but doesn’t necessarily exclude everyone else. You don’t have to buy with someone you’re in a relationship with – in fact, sometimes it can be less complicated if you don’t. Friends, siblings and current housemates could all be a good option with respect to sharing the cost of a property purchase. Just make sure you have the right legal documentation in place to enable a split if you later want to go your separate ways.
And if you just can’t get there on your own…
It’s is often worth asking friends or relatives whether they are able to help you out. Contributions towards a deposit could give your savings the boost they need, whether they come from a relative’s own savings pot or something like equity release, which enables a homeowner to release (as cash) some of the equity in the property that has been paid off.
Alex Hartley is a keen advocate of improving personal finance skills. She's worked at Solution Loans since 2014 and written hundreds of articles about how people can manage their money better. Her interest in personal finance goes way back to...Read more about Alex Hartley