How to save money for a house

When you're looking to buy a house, the first thing you need to think about is saving up for a house deposit. 

A house deposit is a lump sum of money that you pay towards the cost of a property. You’ll need a house deposit to get a mortgage, which is essentially a loan you can use to buy a home.

Here's how to start saving money for a house: 

Research found that you need an average salary of nearly £54,000 to afford a typical first-time buyer property on your own in 20 major UK cities. But the amount you need to save may be more or less than this. 

It depends on things like:

A house deposit is a percentage of the price of a property.For example, if you saved £20,000 for a £200,000 house, you’d have a 10% deposit. This means you’d need a 90% mortgage (sometimes referred to as a home loan).

You’ll usually find mortgages of up to 95%. It’s rarer to find a 100% mortgage these days, and these typically require a guarantor. A mortgage broker may be able to help you find mortgage rates not advertised on some lender's websites.

Generally, putting down a larger deposit means smaller monthly mortgage payments, since you owe less overall. It can also get you a lower interest rate – but be aware that mortgage providers tend to look at deposits in multiples of five. For example, you may get a better rate for a 10% house deposit than a 5% one, but bumping it up to 7% is unlikely to make a difference.

The more expensive the house, the more you’ll need to save. Prices often depend on location and type of property, among other factors. Here’s an example of how they can vary:

You can explore prices in your area on the government’s land registry website.

Buying a home comes with several additional costs that you might not have thought of first time round. Several closing costs like conveyancing fees, solicitor fees for exchanging the contract, stamp duty - the list goes on. The HomeOwner's Alliance has a comprehensive guide on all of the hidden costs you'll also need to save up for.

Now you have a better idea of how much you need for a house deposit, it’s time to do a reality check. Take a look at your finances to see what you can put away each month, and how long it’ll take you to get to your target.

If you’re saving over several years, remember that your income and outgoings may change – for example, you might get a higher paying job or start a family.

If you’re not happy with the result, think about how to reduce the amount you need for your deposit, or increase the amount you can save. For example:

You might be aiming too high when it comes to your property price. Try exploring different locations and property types to find options that fit your budget better. 

Ultimately, it’s up to you whether you decide to compromise – and on what factors.

Partner up with someone you trust

Buying a house with a partner, relative or friend can reduce the amount you need to save. You can pool your savings to create a bigger deposit, which you can use to get a joint mortgage. 

Just remember, there are risks to sharing your finances. And you’ll also need to consider things like how you want to share ownership, and what happens if you break up or fall out.

If you’re looking to pool your resources, you could open a joint account with Monzo.

Find out more about Monzo and joint accounts here.

Consider shared ownership

Another option is using a shared ownership scheme. These let you buy part of a home and pay rent to a housing association on the rest. This means you can get on the property ladder even if you can’t afford the deposit for a whole home. 

Plus, shared ownership schemes usually let you increase the percentage you own when you can afford to buy more.

Budget better

Taking a good look at your spending patterns may help you find ways to save more. Remember that even small changes – like buying cheaper brands or swapping taxis for buses – can make a big difference in the long-term. 

You could also consider a big lifestyle change to help you save intensively, like renting somewhere significantly cheaper or moving in with relatives if you can. 

Starting a saving plan is also be helpful if you’re looking to put more money away. Find out more about how to start a savings plan. 

Consider your current debt

It’s important to assess your current debt as well. Are you paying high interest rates on an overdraft, credit card or loan? Saving money while paying interest can feel a bit like shovelling snow while it’s still snowing. So, it may be a good idea to pay off your debt first.

Find ways to increase your income

Finally, it’s worth thinking about how you could increase your income. Landing a higher salary or finding a side job could give you more money to squirrel away.

It pays to be picky when choosing a savings account. Getting one with a high interest rate can help your money grow by itself – especially if your lender uses compound interest. There are many different savings accounts to choose from, from a large variety of banks and building societies.

If you’re looking to open a savings account, here’s how to open one with Monzo.

We’ve made it simple to start saving. Open a Savings Pot in seconds and you can earn up to 1.50% /(AER/Gross fixed) interest on your money, your money is locked away, you can only withdraw it in 12 months and all you need is £10 minimum deposit. 

You have a choice over providers with competitive interest rates to suit your savings goals. 

If you’re saving money for a house, you may find it useful to open a Help to Buy ISA or a Lifetime ISA. 

These are savings accounts specifically designed to help you save money towards your first property purchase. You’ll get a small amount of interest from the bank, as well as the bigger benefit of a bonus from the government. 

They’ll give you 25% of your savings on top, if and when you use those savings to put a deposit on a home. Just make sure you understand the criteria and risks first.

The exact account you choose depends on a few things, including the price of the property you want to buy, when you want to buy it, and how much you can save.

Don’t forget there are extra expenses when buying. These can include:

Help to Buy ISA explained

Focussing your savings into a Help to Buy ISA might be helpful if the property costs no more than £250,000 (or £450,000 if you’re buying in London). 

Here are some important things to consider when it comes to Help to Buy ISAs:

 If you’re not totally sure if or when you’ll be able to buy, but you want to start saving and see if you can get there, a Help to Buy ISA could work particularly well for you. If in a few years you change your mind, you won't have lost anything.

Lifetime ISA explained

A Lifetime ISA might suit you if the property you’re looking to buy costs no more than £450,000 wherever you buy.

You can save up to £4,000 a year, meaning you could pay in up to £333 a month each if you wanted (although unlike the Help to Buy ISA you’re not even restricted to saving monthly). You can get up to a £1,000 a year bonus on top, and you can use it to buy a house worth £450,000 anywhere in the country.

Here are some important things to note about a Lifetime ISA:

 Find out more about government initiatives to help you buy first time buyers here.

If you’re looking to start saving towards a savings goal like a house, download Monzo to open a savings account. Find out more about saving with Monzo here! 🏠