How To Save Money For a Mortgage Deposit

Saving for a deposit can be one of the hardest parts of getting on the property ladder. The task can seem overwhelming, especially with rising property prices across the UK.

With a clear strategy and disciplined approach, accumulating the necessary funds becomes an attainable goal. This article explores practical and effective methods to help prospective homeowners save for that all-important deposit.

We explore a range of strategies, from budget adjustments and expense reduction to increasing income and leveraging savings schemes. Each method is designed to accelerate your savings rate and enhance your financial health, making you a more attractive candidate to lenders.

Adopting these approaches can systematically build up your deposit, bringing you closer to purchasing your home. Whether you’re starting from scratch or looking to boost your existing savings, these tips are geared towards making your path to homeownership a little smoother and more straightforward.

Visit the deposits section of our website to learn more about the technicalities of mortgage deposit rules, including information on required proof for deposits, gifted deposits, concessionary purchases, and when you can use a loan to cover your deposit.

How to save for a deposit

Saving for a mortgage deposit can be daunting, but it’s entirely achievable with strategic planning and discipline. Here are five practical tips to help you efficiently accumulate the funds needed for your deposit.

Set a clear savings goal

Start by determining how much you need to save for your mortgage deposit. This typically ranges from 5% to 20% of the property’s value, depending on the lender’s requirements and the type of mortgage you seek.

Use our mortgage calculators to understand property costs in your desired area, then calculate your target deposit. Having a clear goal provides motivation and allows you to plan your savings strategy effectively, considering your time frame and the monthly savings needed to reach your goal.

Once your goal is set, create a dedicated savings account for your deposit. Look for accounts with higher interest rates to maximize your savings. Setting up a direct debit to transfer a fixed amount into this account as soon as you receive your salary can help make saving a priority rather than an afterthought.

Watching this account grow over time can be incredibly motivating and help you stay focused on the prize—your future home.

If you’re unsure how much deposit you’ll need, speak to a mortgage broker. They can assess your circumstances and determine the amount you’ll need.

Reduce monthly expenses

Audit your monthly spending to identify areas where you can cut back. Common areas for potential savings include dining out, subscriptions you rarely use, and high-cost utilities.

Switching to cheaper alternatives or eliminating non-essential expenses can free up significant amounts each month, which can be redirected towards your savings. Even small reductions in spending can add up over time and contribute substantially to your deposit fund.

Consider using budgeting apps to track your spending habits and set monthly limits for different categories. Being mindful of where your money goes each month can reveal surprising opportunities for savings.

Periodically reviewing your service providers (such as internet, mobile phone, and utilities) to ensure you’re getting the best deal can lower your monthly outgoings without sacrificing the quality of services you receive.

These savings should be made without drastically reducing the quality of your lifestyle. Even if they’re only small savings, they can all contribute to your deposit.

Increase your income

Look for opportunities to increase your income through overtime, a part-time job, or freelancing. Even temporary income boosts can significantly accelerate your savings timeline. If you have a skill or hobby that can be monetised, consider using it to earn extra cash.

For example, if you’re good at photography, graphic design, or crafting, platforms like Etsy or freelance job sites can provide useful additional income.

Another option is to sell items you no longer need or use. Online marketplaces, car boot sales, and local selling pages can be great places to declutter while boosting your savings.

This generates extra cash, simplifies your life, and reduces the amount of stuff you’ll eventually need to move to your new home.

Utilise savings schemes

Take advantage of government savings schemes to help first-time buyers save for a deposit. The Lifetime ISA (LISA) allows you to save up to £4,000 each year, with the government adding a 25% bonus to your savings, capped at £1,000 annually.

This scheme is designed to help you buy your first home or save for retirement, making it a powerful tool to save for a deposit.

While the Help to Buy ISA is closed to new applicants, if you opened an account before 30 November 2019, you can still claim your government bonus until 2030.

It’s also wise to regularly review your savings strategy to ensure you’re maximising your returns. Interest rates and savings schemes can change, so staying informed and ready to switch your savings to a more beneficial account or scheme can make a big difference over time.

Financial advisors or online financial resources can provide guidance and updates on the most effective saving strategies and products.

Reduce Debt

Paying down high-interest debt, especially on credit cards or personal loans, can significantly improve your financial situation and ability to save. The interest paid on debts can often surpass what you might earn through savings, so tackling this first makes financial sense.

Reducing your debt-to-income ratio can strengthen your mortgage application, potentially giving you access to better mortgage deals.

Consider using the snowball or avalanche methods to pay off debts. The snowball method involves paying off your smallest debts first, gradually working up to the larger ones. In contrast, the avalanche method focuses on paying off debts with the highest interest rates first.

Both strategies can effectively reduce debt and free up more money for your mortgage deposit, so choose the one that best fits your personal preferences and financial situation.

Get help from the government

Several government-backed schemes exist to help you get on the property ladder if you’re struggling to save for a deposit or unsure whether your deposit is large enough.

We’ve listed some of them below:

• First Homes scheme: The First Homes scheme allows first-time buyers to buy a new-build property at a discount, typically 30% to 50% below market value. Certain criteria apply, such as being over 18, and local councils prioritise key workers, including nurses and doctors.
• Shared Ownership: The Shared Ownership scheme allows borrowers to buy a percentage of a property (between 25 and 75%) and pay rent on the share they do not own. You’ll need to put down a 10% deposit, but the amount will be reduced as you’ll have a smaller mortgage.
• Mortgage Guarantee Scheme: The government launched the Mortgage Guarantee Scheme to encourage lenders to offer 95% loan-to-value (LTV) mortgages. The scheme guarantees a portion of the mortgage, sharing risk with the lender.
• Help to Build: The Help to Build scheme allows you to build your own home. You get a self-build mortgage from a lender registered with the scheme and can spend up to £600,000 on the property. You have to be over 18, live in England and live in the property once it’s built to be eligible.

If you’re unsure which scheme is best for you, speak to a broker. They can advise you on which scheme is best for you to use, given your circumstances.

Get confidential advice

Navigating your options can be overwhelming, but some services and groups offer free advice on savings, money, and mortgages.

These include:

• The Money Advice Service
• Citizens Advice

And, of course, we are always happy to help with any queries regarding mortgage deposits.