Deposit saving whilst renting

       

Una Short

Having a roof over your head is a basic necessity according to the human hierarchy of needs. Many of us tend to move out of our parent's houses and straight into renting. Often times, we don't begin to think about securing a place we can call our own until later on in life. At this point, we begin thinking about buying a home through mortgage plans whether on our own or with a significant other. The road to home ownership can sometimes be a long one. It might consist of frugal living, months where a quick loan seems unavoidable, denying yourself many pleasures and unwavering determination. Saving for that mortgage deposit is the first big hurdle and may seem near impossible while forking out rent money every month. The good news is that with careful planning, the right information and some key tips on deposit saving, you'll get there quicker than you know. This guide aims to give you a head start on deposit saving by teaching you how to do it while renting.

What is a mortgage deposit?

For those who are new to the world of mortgages and deposits, we'll first outline what a mortgage deposit is. Unless you have thousands of pounds tucked away in an account, you'll most likely need a mortgage to pay for your first home. This loan given by the bank for the purposes of buying property or land, simply allows you to borrow a certain percentage of the cost of the home. You then repay the bank back in agreed monthly installments relative to your income until you completely pay off the house. It is important to note that the loan will be secured against the value of your home until you've completely paid it off. This means that missed payments could resort in the repossession and selling of your home so that the bank gets their money back.

In most cases, the bank will not give you one hundred percent of the cost of the home so that is where your deposit comes into play. Your deposit is essentially a large sum of money that goes towards the property you want to acquire. The size of your deposit is extremely important as it determines the interest rates you'll be paying. This means that the more you're able to cough up, the lower your interest rates will be. Apparently, the cheapest rates tend to be available for people with at least a 40% deposit. This is not to say that you can't go ahead and begin the process with a 10% deposit. However, the more of your property that you own outright, the less you have to pay back and the quicker you will have sole ownership of the property. Now that we've explained what exactly a deposit is we will outline practical ways that you can save it. We've listed a couple of options below, so you'll want to carefully weigh them out and see which work best for you.



save for your deposit

Ways to save your deposit

Ok now we know what a deposit is how do we go about accumulating one?

Cut down on spending

The first step to saving for your mortgage deposit would be to see how much you can afford to save each month. To increase this amount, consider reducing your outgoings. This may require a detailed review of your expenses and seeing areas in which you can cut down. It may be that you need to eat out less or deprive yourself of that annual holiday this year. Although it may be difficult, focus on the end goal which is becoming a homeowner. Our guide on saving skills may help you in this area. The major key is not spending on things you don't need and budgeting until you're able to reach your deposit goal.



"Cut down on unnecessary spending to save" 247Moneybox.com
Click to Tweet



Move back home temporarily

This may seem counterproductive, but sometimes you have to take a few steps back before you can move forward. Moving back home is a great way to save if that option is available to you. Not only will you save money on rent, but you will also save money on utility bills. Make a plan regarding how long you intend to stay there and how much you want to save. Think about ways you can contribute and help out whether monetarily, or through helping out with chores and errands around the house. If you aren't able to move to your parent's house, consider other relatives that you would be comfortable staying with. A friend with a spare room is also another viable option if you can come to a mutually beneficial agreement.

Downsize

If you can't move back home or to a relative's, consider downsizing to cut costs. Moving into a smaller apartment where the rent is significantly less will save you money. It may not be the most comfortable option, but it should help you save your deposit faster. The extra money that you're able to save every month could contribute towards your mortgage deposit. Alternatively, downsizing might also mean getting a roommate if you live alone. Splitting the rent with someone else will cut your rent in half. Try and ensure it's someone that you will get on with or at least be able to cohabitate with. Also, see how long you'll need to stay together in order for you to save enough.



house keys save for your deposit

Cut down your bills

Reducing the amount you're paying on bills, will save you a significant amount of money. Some areas that you can cut costs include in the area of energy bills, store card expenses, overdrafts, and late payments. Reducing unnecessary spending and consumption will reduce your monthly repayments. Cutting down on bills will help you have left-over cash every month.

Rent out your spare rooms

Having a spare room in the house is a way to bring in extra cash. If you happen to have a spare room or two, and your landlord is okay with it, you can rent them out as an extra stream of income. There are several means of renting the room out including providing temporary accommodation. You can also offer the room for tourists and people who may need a space short-term. There are numerous websites in which you could join and advertise your space as well as the dates in which they're available to be rented. The more forums you advertise on, the better your chances of getting a temporary tenant. Also, don't forget to try and ensure the rooms are in good condition and you take high-resolution pictures to attract people. This should be another route to creating a steady income stream that can be dedicated to your deposit.

Find a guarantor

If you're finding it hard to save the deposit, a guarantor is a way to ditch having to put down a large sum upfront. Getting someone as a guarantor is a big risk to them as they commit to payments in instances where you fall short. Some may also have to use their property or savings as collateral. On this note, ensure it's someone you have a good relationship with. Parents might be great candidates for this role.

Pick up an extra job/skill

Creating another stream of income is a way to help you save your deposit. If you can, pick up a part-time job to fill up some of your free time. Although you'll have far less time to yourself, it will give your finances a boost. If you find it difficult to find a part-time job, use one of your skills or talents. If, for example, you're good at baking or knitting, put those skills to use. You could bake treats and sell them to friends, family, and people within your network or sell knitted goods. See what services that you can provide in your spare time that will generate income.

Other saving tips

We covered quite a few strategies that you might want to try, here are some more:

A traditional way of saving your deposit is to use a savings account. In addition to your general savings, you'll be able to add extra pounds on top from interest. To explore your options, go to the bank and see what accounts they have available. Try and go for an account that has a reasonable amount of interest so that you can get the most out of your money.

Buying a home can be a long-term goal so you don't have to rush to save your deposit. Decide on when you would like to secure your mortgage and then set your monthly targets accordingly. Once you decide on this amount, creating a standing order to have it removed from your account every month and put into a separate account may be a good idea. This way, it's taken out and saved before you have the chance to spend it. It will also help you manage the balance better if the excess money you want to save for your deposit isn't readily available.

Saving to buy a house and paying off your debts simultaneously may prove to be a challenge. If you can, try and deal with your debt before saving. It will most likely give you a much better credit score. This is a good thing as it'll also increase your chances of getting a lower interest mortgage deal.

We all have junk lying round the house. Why not see if you can get some extra cash for that junk? There are loads of ways to sell them be that via a car boot sale, a garage sale or online via an online auction. People are often surprised just how much cash is locked up in things we just don't use anymore. Why not have a look at the back of the cupboard or in the loft for items that haven't seen the light of day for a while. Ask yourself if you need the item and be honest! Then swap the unwanted item for cold hard cash to bung in your deposit.

It is increasingly popular these days to go in with a friend, sibling or parent as co-purchasers. This gives you greater spending power and lenders may treat your affordability in a different manner if all borrowers are considered to be full time employed contributors. Get a solicitor involved to draw up a formal agreement between all parties before any purchase to avoid any sticky issues further on down the line.

By this we mean engage a professional to help you make the most of your savings. We don't just mean look for the best interest rates but get proper advice on different asset classes as well as the risk that your invested cash could go up as well as down. Some new asset classes that have appeared over the years and may offer super normal returns include buy-to-let property funds, p2p and cryptocurrencies.

Look for government schemes

If you didn't know, the government has affordable housing schemes that you could be eligible for. One option available is for them to help with savings through a help to buy ISA. The way this works is that if you're saving to buy your first house, the government will top your savings up by 25% or up to £3,000. The great news about it is, you don't have to pay the amount they give you back.To be eligible, the purchase price must at least be £250,000, your only home, and one you intend to live in.

Another scheme you could opt for is acquiring a home through shared ownership. This would have to be done through a housing association. Ideally, you would buy a share of your home anywhere between 25% and 75%, then pay rent on the remaining amount. If you happen to be a first-time buyer, existing shared owner, or used to own a house and can't afford a new one, you may be eligible. You'd also need to be earning less than £80,000 annually.

A third alternative is a low-interest loan or what's often referred to as an equity loan. With this option, you'll need a 5% deposit and the government will loan you between 20% and 40% depending on where in the UK you live. You will then require a mortgage to cover the rest of the amount. To be eligible, the home you want to buy must be a new build, have a purchase price of up to £600,000 , be the only one you own and you've got to prove you can't afford it.

6 reasons to own

  • No more rent!
  • Security
  • Potential investment
  • Pride of ownership
  • Privacy
  • Personalise
  • Freedom

Conclusion

Buying a house is a great achievement and also something you should look forward to. Like many great achievements, it may not be an easy journey but hopefully, it will be worth it. Exploring your options when it comes to deposit saving will make sure you're able to meet your goal as quickly as possible.

Are you planning on buying a house? How have you worked towards saving a deposit? For more information on government schemes check out the official website.