How Can I Save For A Deposit While Renting?
Saving for a deposit is usually the first step towards buying your own home
If you’re currently renting a property, it might seem impossible to save enough for a place of your own, especially when you are paying out not only rent, but other living expenses too. Here’s our top 8 tips to make saving for a deposit more manageable.
1.Make A Plan
The first step towards saving for a deposit is working out how much you can afford to pay for your new home, based on affordability and the amount you are able to borrow on a mortgage. This way you can work out the deposit needed, and what is an affordable amount to aim for.
2.Set Yourself A Budget
Set a monthly budget of what you can afford to put away each month. Calculate how much you need to spend on essentials, such as rent and bills, before factoring in your leisure spend. You will then have a better idea of how much you can realistically afford to save each month.
3. Pay Off Credit Card Debt
If you’re carrying credit card debt, you probably want to tackle that before thinking about saving. This might seem counterintuitive when you desperately want to save, but there are two big benefits to tackling high-interest debt.
Firstly, the return for eliminating credit card debt with a high interest rate is much better than the return you’d get from putting your money into a savings account — about 1%. Once your debt is paid off, you’ll have a lot more money save.
Second, paying off your debt will improve your chances of getting a mortgage because it will boost your credit score and lower your debt-to-income ratio, which are big factors lenders consider when deciding whether you qualify for a loan.
Remember to transfer credit card debts to new ones with a 0% balance transfer. This enables you pay off more of the debt rather than the interest, meaning it will be paid off quicker.
4. Cut Down On Spending
Obvious right? Saving for your mortgage deposit means seeing how much you can afford to save each month. To increase this amount, consider reducing your outgoings by cutting out non-essentials. You might really have to review your expenses and find areas in which you can cut down. It may mean no holiday this year, or fewer nights out/luxuries Although it may be difficult, focus on the end goal of becoming a homeowner. The major key is not spending on things you don’t need and budgeting until you’re able to reach your deposit goal.
5. Cut Down Your Bills
Reducing the amount you pay on bills, will save you a significant amount of money. Some areas that you can cut down on include energy bills, store card expenses, overdrafts, and late payments. Reducing unnecessary spending and will reduce your monthly repayments. Cutting down on bills will help you save left-over cash every month. Review all your bills and transfer to cheaper providers. Try to negotiate with current providers, there are often deals to be had if you ask for them or threaten to move your business.
6. Take An Extra Job/Hours
Creating another source of income will help you save for your deposit. Does your current employer offer overtime that you could ask for? If you can, take on a part-time job. You will have far less time to yourself but you will be earning whilst not having the opportunity to go out spending. It will give your finances a boost. If you have trouble finding extra employment, see what services that you can provide in your spare time that will generate income.
7. Sell Unwanted Stuff
We all have belongings we do not need. Why not see if you can get some extra cash for them? There are many of ways to sell whether it be eBay, Gumtree, Facebook selling pages etc. People are often surprised just how much cash is tied up in things we don’t use anymore. Have a look around your house ask yourself if you need each item that might be worth a few quid.
8. Look For Government Schemes
If you didn’t know, the government has affordable housing schemes that you may be eligible for. One of them is for them to help you save through a Help To Buy ISA. This works if you’re saving to buy your first house. The government will top your savings up by 25% or up to £3,000. This is good because you don’t have to pay the amount they give you back. To qualify, the purchase price must at least be £250,000, your only home, and it is your primary residence.
Another scheme you could look into when saving for a home is Shared Ownership. This is done through a housing association. Ideally, you buy a share of your home; anywhere between 25% and 75%, then pay rent on the remaining portion. If you are a first-time buyer, existing shared owner, or have owned a house previously and can’t afford a new one, you could be eligible. You would also need to be earning less than £80,000 annually.
A third option is what’s often called an Equity Loan. With an equity loan, you’ll need a 5% deposit, then the government will lend you between 20% and 40% depending where in the UK you live. You will require a mortgage for 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 and be the only property you own and you must prove you can’t pay for it alone.
Home prices remain high in the UK and it is difficult to save whilst renting but if you’re savvy with your finances it is possible. Make sure you know what to expect in the house purchase process and what it is likely to cost. Doing your homework will mean you don’t make expensive mistakes. We have lots of guides and information to help you along the way.
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