Simon Ripton, head of consumer banking at Ikano Bank, offers some advice on savings in order to build up enough money for a deposit on your first home
Stepping onto the property ladder for the first time is getting harder. Figures show that it could take you on average 22 years to save up your deposit, and up to eight years longer to do the same in London. Rising living costs also mean savers will struggle to put away the necessary pounds for a deposit.
So, here’s some tricks you can adopt to make saving for you first home easier.
Set your target
Undertaking a big savings project can be pretty daunting. But there’s no harm in starting small. And steady progress towards your target can be really motivating too if you’ve got an end goal in sight.
Try to estimate how much you’ll need save towards a deposit for your first home. On average, deposits tend to be 17% of the total value of the property for a first-time buyer, according to Which? but it is possible to get a mortgage with a 5% deposit. That means for a home worth £200,000, a realistic deposit would be between £10,000 and £34,000.
Now, you’ve got your target, the hard work can begin. If you’re completely new to saving or want a softer introduction to putting your money away, start off small. Increasing how much you put away each month by say £10 or £20 a month might make it more manageable. In the first month you might start saving just £30 for example, but it could easily build once you get used to putting money away.
Habit-swap
To help you save more look at some small changes you could adopt to your habits to make saving extra money easier. It can apparently take anywhere from 28 days to 66 days to break a habit – so it’s best to start early.
Begin by looking at your attitude towards spending. One quick change could be in how you think about money and debt. It’s all too easy to get into the habit of dipping into your overdraft when you find yourself short of cash and it quickly becomes like second nature. This can setback your savings as any spare money you have is spent on interest and charges. Even having an arranged overdraft can leave you spending money you don’t have. Try your best to keep in the clear so you can begin saving from a positive balance.
A handy savings habit to adopt instead is to create a standing order so once your pay cheque comes in, your savings are safely out of easy reach. Saving for your home should ideally feel like paying National Insurance – hopefully you won’t even notice it coming out of your pay after a while, but feel the benefit in future.
Track, plan and compare
Once you’ve got the swing of this, you should look to step-up your saving efficiencies. Collect your receipts and make use of online banking or check your monthly statements so you can list your expenses for a week. Use a notebook or spreadsheet to categorise into food, leisure, bills, travel and miscellaneous. This should give you a better idea of where you might be spending more than you think. Here are some simple swaps you can make in each category:
- Food – do one big weekly shop, or a large online order to avoid pricey trips to your local store
- Leisure – limit yourself to one meal out a week and tap up your friends for cinema deals
- Bills – Shop around to see if you’re paying more by sticking to your supplier
- Travel – Can you swap the car or train for walking or the bus? Cycling can also save you a lot of money
- Misc. – Curb spontaneous spending by buying friend’s birthday presents months ahead in the sales
Try one or all of these for a month and see how much you save – then transfer that to your savings account.
You might not be able to keep it up for the whole year but doing a ‘Frugal February’ or ‘Skint September’ can give your first home savings an unexpected boost.
Be both a deal-maker and deal-breaker
Your bank should be your best friend, not a burden. Saving for a home means you’re a long-term customer and so you should demand the best returns on your money.
People get put off by the hassle that’s perceived in changing banks, but sometimes sitting still can mean you’re missing out on better deals. Don’t be afraid to move your savings elsewhere, away from your existing bank.
There’s been a boom in comparison sites over the last few years, so make good use of the free service they offer. Top table alerts are in newspapers, online and you can sign up for them. By following these simple rules, you never know, you might be walking through your own front door sooner than you think.
