The guide to saving for a house deposit

Housing is currently the hot topic on everyone lips. The Autumn Budget 2017 was pretty focused on it and you only have to step onto twitter to see young people talk about it quite a lot.

Mostly they’re tweeting sarcastic remarks about how they can’t afford a house because apparently they spend too much on avocado on toast, rather than because house prices are out of proportion with wages.

The problems facing our housing market our numerous and complex and this post isn’t really the place to get into it. But I do think there is more to the avocado on toast argument than many young people may think.

Sadly it isn’t as simple as just give up avocado on toast for the rest of your life and you’ll magically have enough money for a house (perhaps you don't even like avocado). To take that from the article is a gross oversimplification.

It’s more about giving up the avocado on toast lifestyle.

Plenty of people will now immediately close my blog and shake their head about ‘baby boomers who don’t understand anything’. Except I’m no boomer, I’m a fellow millennial. But crucially I’m a home owning millennial without the bank of Mum and Dad.  

There is no magical secret to how I managed it. The harsh truth is that if you want to save enough money for a house in this current day and age you have to give up the ‘have it all lifestyle’. 

You know the one I mean. 

The brunch at a fancy café on a Sunday, cocktails on a Thursday night, jetting off on holiday to exotic places, drinking Starbucks on the regular and the constant ‘treat yo’self’ mentality.

We just love to make other people think we spend all of our days casually brunching with friends, buying designer items and always going off on our newest long haul adventure. 

In reality most of us are working the day job and living this life in our spare time and by the time pay day rolls round we’ve convinced ourselves that we deserve a treat just for getting through the week.

If we’re honest a lot of the time, we live this life to look cool for the ‘gram and the rest of the time I think we do it because we think that’s what we *should* be spending our money on.

I recently saw a tweet where someone was saying how happy they were to have reached their saving goal to buy a MacBook Air in three months. I couldn’t believe how many replies the tweet had. Barely a single tweet was congratulating them on their achievement, but instead demanding to know just how did they do it?

If we take it right back to basics there are pretty much four ways to get more money:

• Steal it
• Earn it
• Invest it
• Get given it

Stealing it is hardly an option, if you were able to ask someone to give it to you then you probably wouldn’t be reading this blog post, you probably aren't working with a timescale long enough to think about investing it and like most young people you’re probably struggling to earn more money than you already get.

So if the above is true then we all know the answer is simple really. 

In order to save more money you have to spend less than you earn.

This was exactly the answer the person gave to everyone demanding to know where she magically got the money for a new MacBook Air from. It didn’t just appear in her bank account, she spent less than she earned and saved the rest.

But we don’t like to hear that you have to spend less than you earn. 

Why? Because it’s hard. 

Instead, we like to convince ourselves that there is some magical formula or skill that you have to have in order to save money and for a lot of people it seems to become their excuse as to why they don’t save any money. 

Don't get me wrong, I'm well aware of the issues surrounding stagnant wages and the increasing cost of living. It definitely effects me too. For a lot of us most of our salary just goes on keeping a roof over our head and the bills paid. But I don't think that means you should give up if you really want to own your own home because it can be done if you make it your single minded goal.

In many ways, saving money is rather like losing weight. In order to shed some pounds you have to burn off more calories than you eat. There is no magical diet or exercise regime that can work around this irrefutable fact of physics. 

But that doesn’t stop a multi billion pound industry trying to convince you otherwise. Or thousands of people with endless excuses about their metabolism or being built that way. Aside from rare cases of actual medical conditions, for the vast majority of people, if you eat less food than you burn in a day, over time you will lose weight. 

But just like saving money, people want a cheat method to get to the end goal. Sadly one doesn’t yet exist for either example.

This might not be the truth you want to hear but if you really want to own your own house, you have to close your ears to all the noise. 

You have to stop listening to people who complain to you about how easy it was for your Grandparents to buy a house and how things aren’t fair because none of that will help you.

The world doesn’t function on fair, and if you wait for it to be fair you could be waiting forever until you own your own home. Whether we like it or not buying a house is harder than it used to be so you have to learn to save as effectively as you can in the meantime. 

That means making sacrifices. Depending on how you like to spend your money those sacrifices may have to include avocado on toast. 

1. Know how much you need to borrow

This might sound counter productive, but in order to know how much you need to save for a deposit you first need to know how much money you can borrow for a mortgage. A good place to start is by using an online mortgage calculator which will calculate how much you can borrow. 

Or you can call a mortgage broker and ask them to talk you through what you can afford. 

I used London & Country and found them to be exceptionally helpful. The best part is they don’t charge a fee.

By knowing how much you can borrow you can get a better idea of what your overall house buying budget is. It’s no good thinking you can buy a £400,000 house when the most a mortgage lender will let you borrow is £200,000.

     2. Work out how much you need for a deposit

Now you know how much you can borrow, you can work out what you’ll need for a deposit. So for example, if you know you can borrow £180,000 and you want to buy a £200,000 house you’ll need to save the remainder of £20,000.

This is enough for a 10% deposit. The larger the deposit in relation to the amount you want to borrow (called the Loan to Value Ratio or LVR) the better the mortgage deal you can get. So it pays to save as big a deposit as you can.

There are mortgages available for those with a 5% deposit but these will charge more interest than those available for a 10% deposit. 

3. Add in the extras to get to your overall savings goal

When saving to buy a house, it isn’t just about the deposit. There are other additional costs to think about such as solicitors fees, mortgage fees, surveys, removal costs, stamp duty etc.

Thanks to recent changes in stamp duty you probably won't have to pay this now, but it’s worth checking if you need to budget for it, particularly if you live somewhere pricey like London. There are lots of good online calculators.

Do your research on other home moving costs, but to give you a rough idea we paid £1,300 in solicitors fees, £550 for a HomeBuyers report and £350 in mortgage fees.

Add this amount to your deposit money and that should give you your total savings goal.

     4. Work out what you’re prepared to sacrifice

This is where we come back to avocado on toast. What are you prepared to give up in order to save for a house? As we've already established that money needs to come from somewhere. 

You probably wouldn't be reading this if you had lots of disposable income so some aspects of your lifestyle will need to be reduced.

The easy ones are things like the gym membership you never use but what about the things you rightly reckon that you deserve because you work hard?

Can you give up holidays? Nights out? Quit smoking? Takeaways? Eating out? Shopping?

Do you want your own house more than you want the extras in life? Only you know the answer to that. But if you’re serious about buying your first house in the not too distant future then virtually all unnecessary spending has to stop or it will take you a VERY long time to save up.

If we’re being honest we know we waste chunks of our money on the little things. Magazines, picking up a chocolate bar when we pay for our fuel, buying sandwiches because we’re too lazy to make them.

This article has got lots of excellent advice about the small things we pretty much throw money away on and how giving it up can actually help you buy a house. 

Those little things like buying sandwiches at work can work out at thousands of pounds a year, so you may be able to claw back a fair chunk of money without too much sacrifice in some areas.

     5. Cut your living costs if you possibly can

Everyone’s situation is different so it’s almost impossible to write something that will cover everyone. But for most people their living costs take up a large proportion of their income so any saving you can make here means more money to stash away.

The most painless way to do this is to make sure you’re paying as little as possible for all utilities.

But if you can make savings on keeping a roof over your head you’re likely to make more of a difference. Ideas to consider are:

-Moving in with friends or family who are kind enough to let you pay a reduced rate.

-Sharing a flat or house if you currently live alone.

-Depending on your circumstances taking in a lodger.

-Moving in with your partner.

-Relocating to a cheaper area.

I moved back in with my parents and while I still paid them rent, it gave me the extra cash to save each month.

Obviously not everyone has these options open to them but it is worth taking a think about how you could cut back on what is probably your biggest monthly expenditure. 

     6. Look for extra ways to boost your income

The small extras you can make on the side can really add up over time.

Could you work an extra job in your spare time or do some overtime? Perhaps do some odd jobs for friends and family for a little bit of extra cash? Using cashback sites can also help to boost your income.

Selling some of your old stuff on eBay, Facebook, Gumtree or a good old fashioned car boot sale is worth trying too.

None of these are likely to make you rich. But they might give you enough for a few nice things to help keep you going while you save. 

7. Make your savings plan and stick to it

Once you have trimmed all the unnecessary spending and cut as many costs as you can you will be able to work out how much you can afford to save per month.

Whatever that figure is, you must start to see that savings goal as being non negotiable. You wouldn't accidentally spend your rent money on non essentials and your savings need to become just another outgoing in your mind.

Set up a standing order to transfer the money as soon as you get paid. This is absolutely essential. It's no use trying to be good all month and then saving whatever is left. You will just spend it (trust me, I've tried, it doesn't work).

It is also a good idea to transfer the money to an account that you can't see every time you do your regular banking. Obviously the money needs to be accessible but having it out of sight, out of mind can really help the urge to spend it all on a two week trip to Barbados. 

You can use an online calculator to help you work out how much you either how long it will take you to save the required amount or how much you need to save per month to hit a certain target date.

Use this info to make yourself a progress chart like the ones people use for raising money for charity and tick it off each month when you add more money to your savings. Doing this might sound silly, but it can really help with motivation. When you feel low, take a look at how far you've come.   

      8. The importance of staying disciplined

I recently saw another person tweeting about buying the new Naked Heat palette on the sly, because if their mum found out they would lecture them about how they’re supposed to be saving for a deposit. This person was claiming that one make up palette isn’t going to make any different to the thousands of pounds they need to buy a house.

They’re correct in some ways. £38 probably won’t make much difference providing this splurge is a one off. But if you justify this kind of purchase with this excuse a lot then you will have lots of clothes and make up, but no house to put it in.

It took Jared and I a year to save for our deposit. During that time I bought one new dress (yes that’s right, just ONE) and no new make up. We didn’t go on trips, we didn’t go out, we didn’t go on dates, we didn’t go to the cinema. We stopped all of it and only did them on very special occasions in order to keep us motivated. 

I'm not saying this to make you feel bad for treating yourself, just to remind you that you can do without things and that you always have to ask yourself, do I want this more than I want a house?

If you can afford a treat without compromising your savings plan then by all means go ahead. But ask yourself, if you can regularly afford to treat yourself to expensive things then would that money be better used if it was helping you reach your goal quicker?

Bear in mind that £100 of treating yourself a month adds up to £1,200 a year. Although not a life changing amount of money it would probably make a reasonable difference to your house deposit. 

The more disciplined you are in the short term, the quicker you will reach your goal. 

9. Staying motivated

This may sound like I'm contradicting myself from my previous point but it is important to build in rewards to keep yourself motivated. 

Otherwise it just becomes an endless monotony of working and saving.

I found the best way to do this was to plan fun things for when you reach certain saving targets. This way you encourage yourself to keep going and you look forward to hitting your next goal.

It can also help to set yourself a dedicated part of your budget for 'fun spending' even if the amount is small. We all enjoy the little things and denying yourself everything makes life no fun at all. 

Chances are you will be saving for some time so try to keep a good balance is important. 

There is a world of difference between frittering your money away on consuming things you don't really need (while complaining that you don't have enough to buy a house) and deciding how much is reasonable to spend on fun things without compromising your savings plan. 

10. Get as much help as you can

While it might seem small there is help out there for first time buyers. It won't give you enough to have a deposit overnight but you should take ALL the help you can get. 

There are two main ISAs (Individual Savings Accounts) for first time buyers. 

The first is the Help to Buy ISA and the second is the newer Lifetime ISA. 

The government will give you extra money on top of your savings (up to £1,000 a year for the Lifetime ISA at the time of writing) so it is well worth doing.

This is particularly true if you are saving as part of a couple as ISAs are individual products (the clue is in the name) so you can both have one if you are both first time buyers. This means a potential £2,000 a year between you from the government is available. 

There are pros and cons to each different ISA and you should look into which one is right for you. This guide might help you. 

In conclusion, it is 100% possible to buy a house as a young person in the UK in 2018. More and more of my friends are managing this feat (without help from family) so it can be done. It takes time and effort to save but it is worth it in the end when you get the keys to your first house. 

First Time Buyer blog post series

1.  We bought our first house
2. Our house buying story