This blog takes an in depth look at 23 of the best ways to get hold of a house deposit – including 3 which hardly anyone would think about…
Not being able to save a deposit is one of the biggest hurdles for first time buyers and people looking to buy a second property, such as a second home or an investment property.
But getting hold of a deposit is not as difficult as it may seem at first sight.
There are many ways you can save, secure or raise a quick house deposit.
The first three listed below are probably the best of all. They can secure a deposit in one go and don’t actually need any saving.
1. The Bank of Mum & Dad route to a property deposit
The very best way to save a deposit is not having to save for it at all!
A great way to do that is to get your deposit from your parents or grandparents.
The Bank of Mum & Dad or Bomad is the name given to parents and grandparents using their savings and investments to help their children and grandchildren get onto the property ladder.
Savings are being accessed, but it is the savings of parents and grandparents.
In terms of lending levels to first time buyers, Bomad is considered to be in the top 10 of UK banks.
Getting help from Bomad is probably the quickest and best way to secure a deposit to buy your first home – especially if the payment to you is a gift.
If the payment to you is a loan, you may be able to negotiate a rate of interest much lower than you would pay to a regular lender.
Where you are due a legacy from a parent or grandparent, asking for early payment of that may be a wise move. When house prices are increasing, the legacy may be more valuable to you now than in the future.
It is good practice for both parties to seek legal advice prior to any substantial payment from Bomad.
2. Access equity from a property
Another fast and powerful way to raise a house deposit without the delay of saving is to rely on equity in a property owned by a parent, family member or even someone unrelated to you.
Equity in a property is the difference between its value and any mortgage on it. The property could be someone’s home or an investment or buy-to-let property.
The money you access could be a gift or a loan. Equity can be released by several methods including:
– Second mortgage
– Secured loan
– Further advance
– Equity release.
It is good practice for both sides to take legal advice prior to any transaction, so as to be sure that the transaction is fair and reasonable for both sides and will not lead to any unexpected adverse outcome.
3. Find a 100% mortgage
Another way to obliterate the need to save for a mortgage is to find a mortgage where you don’t need a deposit at all – where you get a mortgage equal to 100% of the purchase price.
Lloyds Bank has such a mortgage – known as the “Lend a Hand Mortgage”. Providing a relative of yours saves with Lloyds the equivalent of 10% of the purchase price for 3 years, they will lend you the full purchase price.
You can use this scheme to buy a property up to £500,000 in value.
Barclays Bank have a very similar product known as the “Family Springboard Mortgage”.
As lenders compete to lend in a low interest rate environment, similar mortgage products are expected to offered by other lenders.
4. Buy on a co-ownership basis
Another great way to save a deposit at a lateral thinking level is to buy a property with someone else, on a joint or co-ownership basis.
As the deposit is shared by you and your co-owner, the amount of deposit you need is reduced, typically by one half.
Having a smaller deposit target, you should be able to achieve your deposit quicker and easier.
If you are saving for a deposit, you will reach your target sooner.
5. Cut your discretionary spending
Possibly the first and most fundamental step to saving a deposit is the reduction of your regular household and personal spending.
In particular, you should look at totally cutting out your household and personal “discretionary spending” – spending you do not have to make – expenditure on things like cigarettes, alcohol, expensive coffee, work lunches, takeaways, designer clothes and luxury goods.
There is in fact a vast number off discretionary spending items and cutting them out could easily save you thousands of pounds a year.
Say you spend an average of £20 on takeaways a week. Cutting that expenditure would save you £1,040 in a year.
If you spend an average of £35 on alcohol a week, you would save £1,820 if you stopped for a year.
6. Reduce your non-discretionary spending
Non-discretionary spending is essential expenditure – spending on things such as rent, food, clothing, utility bills and travel.
You cannot get rid of such spending, but you can reduce it by various strategies or tactics.
For instance, if you are renting on your own, you may be able to share with someone else to halve your rental costs and at the same time your household bills.
By using price comparison sites, you may be able to find cheaper suppliers for non-avoidable spending on things like gas, electricity, broadband, phones and TV packages.
With food, you can opt to shop at the cheapest supermarkets, using markets for fresh food.
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7. Do overtime
Doing overtime is one of several ways you can increase your earnings.
Don’t make the common mistake of thinking reducing your spending is the only way to save for a property deposit.
Growing your income is usually equally as important. In fact, if you cannot trim much from your spending, it is more important.
Overtime can be a big boost to your savings. Say you can do 5 extra hours a week at £15 per hour. Over a year that comes to a very healthy £3,900.
8. Ask for a pay rise
Not every type of job offers the opportunity for overtime. Another way to boost your earnings is to ask for a pay rise.
Clearly you cannot just ask for a pay rise and expect to get one. Take the time to assess and write down the strong and convincing reasons why you justify or deserve a pay rise and put them to your employer.
If you have an annual or bi-annual pay review in any event, look to maximise the increase by spending extra time and effort to put together the most compelling arguments in your favour.
9. Take a second or third job
If possible and practical, look to find a second or if you have a second job already, a third job.
If you work in the week, a second job at the weekend may be especially convenient.
Consider whether you can find a job you can do from home. Not only will that save you the time of travelling to work, you will also save on travel costs, thereby in a position to save more of your extra earnings.
10. Start a home-working side hustle
You can also boost your earnings by taking on a side hustle which you can carry out from home.
There are a great many possibilities, but a simple and effective example is selling products on Ebay or Amazon.
If you have the time and wish to be more ambitious, you could look at e-commerce, setting up your own website for sales.
Similarly, you could look at blogging – monetising your blogs by relying on adverts, affiliate marketing and sales.
11. Set up a self-employment business
The next step up from a side hustle is to run a proper self-employment business. This can be a bricks and mortar business or an internet business.
This will be a bigger and more formal venture that a regular side hustle and would be appropriate if you have the time and resources to do it.
The obvious advantage is that you stand to gain greater earnings if all goes well.
The drawback is that it will take more of your time and resources and may not be appropriate for you having regard to your time, resources and skills.
Many people have set up a self-employment business in addition to their regular employment and have later gone on to end their employment and devote all their time to self-employment – due to the greater levels of income and profit.
12. Boost your self-employment profits
If you are self-employed rather than employed, you can boost the amount available to save for a house deposit by concentrating on your business income and expenditure as well as your domestic income and expenditure.
Take a close look at your business to identify ways that you can reduce your expenditure, expenses or overheads. For instance, you may be able to reduce your labour costs or find cheaper suppliers for goods or materials.
You should also focus on the income side of your business – identifying ways you can grow your income. That may involve something as simple as increasing your prices, fees or charges.
By working on both your expenditure and income, you should be able to increase your profits, enabling you to increase your drawings and save a house purchase deposit faster.
13. Sell your knowledge, skills or expertise online
If you have saleable knowledge, skills or expertise, look to sell them to raise extra income by using freelance websites such as Fiverr and Upwork.
Most of us have a range of skills and expertise which others would pay to acquire.
Setting up a profile and account on a freelance website is quick and easy and even modest earnings will add to your house purchase deposit, which can only be a good thing.
14. Use your existing savings and investments
A quick way to a house deposit is to rely on any savings and investments which you currently have.
You may have other plans for these sums, but ask yourself whether it would make sound financial sense to use them instead as a house deposit – especially if house prices are rising faster than the interest or gains you are receiving.
15. Maximise your income or gains from savings and investments
If you are lucky enough to have savings or investments which you later plan to use for your deposit, make sure that they are making the best interest, income or gains in the meantime.
Of course it is prudent not to take any risk with such savings by using methods which could lead to a loss in capital value.
However it is sensible to seek out investment or saving schemes giving you the best or highest income.
One or two percent extra interest may not seem a lot, but over time, it can mount up.
For example, say you had £20,000 gaining interest for 4 years. An extra 1.5% over the 4 years would mean an extra £1,200 – and that is without the benefit of compound interest.
16. Sell your unwanted items
It is amazing how many of us are hoarders – holding onto things we no longer need or use; keeping them in drawers and cupboards as they gather dust and (usually) depreciate in value.
Check to see what unwanted items you have at home – things like phones, headphones, hi-fi equipment, electrical equipment, computer consuls and computer games – and sell them on places like Ebay to top up your house deposit savings.
17. Sell items which can both make and save you money
Particularly consider whether you have any high value items which, if sold, can boost your capital as well as your income balance.
A great example is a car or motorbike which can fetch a good price on sale.
You will benefit not just by having the capital amount received on the sale, you will also save on the monthly running cost in terms of things like petrol and insurance.
Running a car is one of the biggest items of household expenditure for many of us. Getting rid of your car, possibly only for the period in which you are saving for a house deposit, could give a huge boost to your property deposit efforts.
18. Sell high value items
Look to beef-up your savings total fast by selling high value items you own and can do without.
These can be things like watches, jewellery, designer clothes, collectibles and antiques.
19. Reduce your accommodation costs
A major way to save for a house deposit fast is to focus on ways of reducing your current accommodation costs.
As well as flat sharing to halve your rent and home-running costs, look at renting less expensive accommodation in less desirable locations.
You can also go for smaller, lower rent accommodation.
Moving back home to live with your parents for a short time may also be an option.
If your tenancy agreement allows you to sublet, or you can get the permission of your landlord to do so, consider renting out any spare room.
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20. Take advantage of the Help to Buy ISA
Not many people know that the UK government helps first time buyers with a deposit in the form of the Help to Buy ISA.
If you take out a Help to Buy ISA, the government will effectively top up your savings by 25% up to a maximum of £3,000.
To get the maximum bonus of £3,000 you need to save £12,000 in the ISA.
Technically the bonus cannot be used towards your house deposit directly.
However, by being a contribution to the balance of purchase price after payment of the deposit, it can be a substantial indirect contribution to your deposit by reducing the amount you need to save for a deposit.
21. Use the Help to Buy equity loan scheme
The Help to Buy equity loan scheme is another way in which the government can indirectly help you with your house purchase deposit.
Subject to qualifying for the scheme, you may be able to use it to provide just a 5% deposit instead of the more usual 10%.
This is because the scheme allows you to borrow up to 20% of the price (40% in the case of London properties) in the form of a low cost loan.
22. Buy a shared ownership property
This is further government initiative which helps buyers indirectly in terms of the deposit raising process.
Help to Buy shared ownership is where, subject to qualifying, you can purchase as little as 25% of a property, instead of the usual 100%.
Normally you can buy anything from 25% to 75% of a shared ownership property.
By buying less than 100%, perhaps as little as 25%, your deposit requirement will be smaller and therefore easier to save or acquire.
With shared ownership, also known as part-buy part-rent, you pay rent on the part of the property you don’t own. At a later date, if your finances allow, you can buy a greater share of the property, usually up to 100%.
23. Maximise interest on your savings
Although not a biggie in terms of amount, remember also to boost your deposit savings by investing them pending their use.
Normal practice is to place them in an interest bearing account, taking time to find the savings provider offering the best rates.
Remember that you can often get enhanced rates if you agree to lock away your savings for a fixed period.
So, if you know you will not be using your savings for say two years, you could put them on deposit for that period, securing any bonus interest.
Clearly it is best practice to avoid putting your deposit savings in any account or savings device where the capital is at risk.
Can you think of a way to save a house deposit I have missed? Please let me and my readers know by giving details in the comment box below.
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Rebel Property Coach
My website is: www.rebelpropertycoach.com
Categories: 01 Finance