Kotini Logo

Saving for a deposit

Kieran Witt, 13 July 2023


What’s this article about?

Learn how to save for a deposit and cover the costs of buying a home with these five steps.

Most people's home buying journey starts in a somewhat similar way… saving for a deposit… It's arguably the most challenging part of the journey and can take the longest, so here are a few tips to give you a helping hand.
What to expect:

  • Step 1: How much will your home cost?
  • Step 2: How much should your deposit be?
  • Step 3: What are the other home buying costs?
  • Step 4: Where should you save your deposit?
  • Step 5: How to start saving for a home?

Step 1: How much will your home cost?

To start, you'll need to work out how big your deposit needs to be, and for that, you'll need an idea of what type of property you want to buy. Start by scouring Rightmove, Zoopla and OnTheMarket to get a feel for what you like and don't like and answer the following important questions:

  • Where do you want to live/Where do you think you can afford to live?
  • Do you want a flat or a house?
  • How many bedrooms are you looking for?
  • Are you looking for a leasehold or freehold property?
  • Do you have any 'must haves', for example, a driveway or a garden? The answers to these questions will help you narrow your search to the types of homes you're likely to buy. Once you're confident you know what you're looking for, you can then find the typical price of that home. For example, a 2-bed terraced house in Westcliff-on-Sea, Essex, costs, on average, £280,000.

Now you have the cost of the home, next you can then work out the size of the deposit you need.

Step 2: How much should your deposit be?

A deposit is the amount of money you pay towards buying a house as a percentage of the overall property price. It can be as little as 5% of the overall cost of the home you want to buy; however, you should aim for 10%. Why?

  • The bigger your deposit, the lower your mortgage interest rates are likely to be.
  • Not every mortgage lender will loan you the money to buy a house if you only have a 5% deposit. Aiming for 10% gives you more options.

Step 3: What are the other home buying costs?

Your deposit tends to be the biggest cost you need to save for, but you'll also have other costs to cover, such as paying your home buying team (mortgage broker, conveyancer and surveyor), stamp duty or paying a moving company to shift your belongings. Here is a quick summary of the different costs to expect:

  • Mortgage broker fees
  • Conveyancer fees
  • Surveyor fees
  • Stamp duty
  • Legal disbursement fees
  • Mortgage fees
  • Moving costs You should try and budget for an additional £2,500 to £5,000 to cover these costs.

Step 4: Where should you save your deposit?

The obvious answer is in a savings account with the highest interest rate you can find; saving for a deposit can take time, so you want your hard-earned cash to work for you as much as possible.

If you're a first-time buyer and under 40, consider opening a Lifetime ISA or LISA for short. You can pay up to £4000 per year into a Lifetime ISA, and the government will then add a 25% bonus (up to £1000) per year. It's free money!

There is a catch, though! The maximum price you can pay for a home with this savings account is £450,000. This probably isn't an issue for most of the UK, but it can be in London.

Step 5: How to start saving for a home?

You know what you're looking for (roughly), how much you need to save and where you'll save it. Now the hard work! Building up your savings. Here are a few tips to get you started.

Cancel unnecessary/ unused bills

We all have them; for me, it's a gym membership I never use. Look through the direct debits on your bank statements and be strict about what you use and don't need. A study by NatWest found that we waste, on average, £468 by not keeping an eye on our direct debits. Classic examples include:

  • Gym memberships (guilty!)
  • Streaming services, e.g. Netflix, prime, Disney or others
  • Food delivery services, e.g. Deliveroo or JustEat
  • Supermarket delivery slots
  • Unused Insurance

Defeat your debt

If you have any high-interest debts, clearing this down first should be your priority, not least because the interest you'll be getting on your savings will be less than what you're being charged for any borrowing. Here are a couple of things that are worth thinking about:

  • Pay more than the minimum payment. This will reduce your debt faster, and you'll be charged less interest over time.
  • Hunt for 0% interest offers and transfer any existing credit cards so you can stop the interest all together. It can feel like a slog paying off your debts first so if you have multiple try to tackle the smaller ones first to get that sense of satisfaction early and use it as motivation to stay the course.

Automate your savings

Put your deposit savings on autopilot by setting up a standing order or even using a smart app like Chip that does the hard work for you. Both options mean you're less likely to forget to put money into your savings account.

A good trick is to set the payment to your savings account to go out immediately after you get paid. This way, you're always saving as much as possible and less likely to be tempted to dip into your savings for the month.

Steer clear of investing

Don't be tempted to put all your savings in the stock market in the hope that you'll generate higher returns. Funds and shares can be a good option for long-term investments (by long-term, we mean five years plus), but stock markets can go up and down, so you need to invest for a long time to smooth out the bumps and dips. Investing your house deposit for a couple of years could reduce your savings increasing the time it'll take you to become a homeowner.