For cash-strapped students, saving for a deposit may sound pointless at best and fairly impossible otherwise. But there are ways to be better off, faster – and it pays to start early!
Whether you want to beat rip-off rents or just fancy place of your own, at some point you’re going to have to do the mortgage dance – and that means crossing a pretty big hurdle: the deposit! If you’ve only just come to terms with the size of your Student Loan, finding thousands for a mortgage deposit may sound like a kick in the teeth – but getting a strategy while you’re still at uni makes things much easier.
Know your options
Very roughly, the larger your deposit, the more mortgage options you’ll get and the cheaper the cost of borrowing (because you’ll have less to borrow). There are other ways to reduce how much you’ll need to save upfront, so it’s worth knowing about them as well:
Parent power: yours may not a few grand going spare, but even a couple of hundred quid could kick-start your savings. Or, if cash is out of the question, moving back home for a few years can help you send more money to savings rather than on rent.
There are mortgages out there aimed at students at university: these let you borrow the whole purchase price without a deposit, usually with your parents acting as guarantors.
Pooling your cash to buy a place with friends or family means you’ll all have less to chip in. Alternatively, with Shared Ownership schemes, you buy part of a home (with a smaller deposit) and pay rent on the rest of it.
Get the savings habit at university
Saving for a deposit isn’t like winning the lottery – it’s not going to happen overnight! Starting early means you can put away less each time and let your money do the hard work for you.
Start with a budget so you know how much you need to cover your living costs and where you can save cash. Don’t forget the easy wins: shovel leftover Student Loan towards savings; max-out your student discount; and consider ditching your TV licence to save £147/yr right off the bat. Anytime you come into money – wages, for instance – always slide a bit off the top for savings before touching the rest.
If you’re goal driven: pick an amount to save every month and work on nailing it every time.
If you’re new to saving: auto-savings or ‘save the change’ apps make light work of cash hoarding.
Either way, don’t feel pressurised to save massive amounts. The important thing is to just get the habit of regularly putting cash away (and then leaving it alone!).
Put £200 every month into a savings account that pays 5% interest, for instance, and you’d wind up with £2,455 after a year – that’s an extra £55 in interest. If you then left the whole amount alone for a second year at 5%, you’d earn another £125, even if you don’t pay anything else in. ***
It’s exactly the same principle that the government uses to (ahem) make money from the Student Loan – and this is your chance to even the books! The key is keeping an eye on interest rates, and moving your money if you spot a better deal.
Boost savings with free cash
A basic savings or even current account is fine when you first start saving, as you just need somewhere to keep your cash safe and separate from your spending money. Once the money starts piling up, the right savings product can help you get further!
An ISA is a savings account with perks. For one thing, the interest you earn is always tax-free. More importantly, two types of ISA come with bonus cash:
The Lifetime ISA lets you save up to £4,000/yr, with the government adding another 25% (up to £1,000) every year. You can withdraw the pot to buy your first home, but if you roll it over until retirement you could potentially earn up to £32,000 in bonuses: that’s one very good reason to start asap!
The Help to Buy ISA also comes with a government top-up of 25% - up to a total of £3,000 – if you use the cash to buy your first home.
Free-cash ISAs come with a few hoops to jump through, but with the extra money on offer, they’re worth checking out sooner rather than later.
Even if you can’t snag an ISA bonus or bumper interest rates, saving while you’re at uni makes sense. Putting away even a few quid every month over three years of study will give you a nice little nest egg by the time you graduate – that’s a head start on your deposit with or without bonus cash.
***Figures/suggestions are just for illustration purposes using calculator available at This is Money.