Life
    Money

    Dear James: How do I save for a deposit on a house?

    10 February 2020

    I’ve been given £10k towards a deposit for my first home but much of my existing income goes on London rent. I don’t live extravagantly but need to find extra savings. What advice would you give me on making that important first step onto the housing ladder?

    Whatever you decide to do, it’s going to be painful for a few years. If you really want to be successful in your endeavours, you’re going to have to re-evaluate what “extravagantly” means and that means making some tough calls. Ensure that every penny you notionally save goes into whatever account you’ve set up for saving your deposit.

    1: Cut out the lattes

    Everyone goes to a coffee shop on occasion. Stop it and save the money.

    2: Work lunches

    Make it yourself. Put the money you save aside.

    3: Be cannier with your shopping

    Go to Aldi or Lidl and cut out the brands whilst you are saving. And don’t forget to find those yellow stickers. The other day I bought a whole bag of carrots for just 10 pence and just after Christmas bought a turkey crown for £8 reduced from £54. There are always deals around. But don’t buy things just because they are cheap as you’ll buy too much.

    4: If you eat meat, eat less of it

    If you’re a vegetarian already, then fine. If not, there are loads of ways in which you can use cheaper more interesting ingredients. Or make soups and re-use all leftovers in something!

    5: Bin the gym

    If you are a member of a gym, bin it and go running, walking or try swimming instead. If you must be a member, find a local one run by your local authority or use an app – they’re always cheaper.

    6: Sell your stuff

    You have way too much stuff and some of it could go. Anything you don’t use, sell on eBay.

    7: Travel

    Don’t waste your money on Uber cars. Use public transport. And, since you live in the city, if you have a car sell it. Not only will that give you a lump sum but reduce running costs too. Think ahead about other forms of travel too: if you’re travelling by train, book ahead and secure cheaper off-peak tickets.

    8: Cut out subscriptions

    Where possible, share with others. Ring to see if you’re out of contract or look at switching. Whether it’s Netflix, Apple Music, your mobile phone, check whether all your other regular forms of expenditure are necessary and whether there’s a better deal to be had.

    9: Switch energy suppliers

    With a third of the country spending too much on their energy, switch energy suppliers. You can usually save a few hundred pounds for every switch you make.

    10. Be creative with your holiday

    Finding cheaper alternatives such as staying with friends or relatives will enable you to save a good portion of your income. Clubbling together with others always pays off.

    11. Use all your tax free allowances

    Save into an ISA and invest some with a high rate cash lender and some in stocks and shares. Tracker funds tend to be less risky. But I am not a financial adviser so take your own view on the risk you are prepared to accept.

    Having clear savings goals is also helpful. Have a dedicated savings account, or even better an ISA on direct debit to hold any cash or investments to keep it away from your own day-to-day funds. With mortgages having come down in cost, the return of the 95 per cent loan to value mortgage and the larger number of products available, borrowing has never been this affordable.

    12. Shared ownership

    Shared ownership schemes also offer a way to get on the housing ladder with a smaller deposit: beware, however, of any limits these schemes may place on the price at which the property must be sold and also make doubly sure that the property you are buying is up to date on all its building regulations. There have been some sad cases in the news recently of shared ownership participants not being able to sell their share of the property because of cladding that is in breach of fire regulations: they are powerless to replace it themselves and yet their properties are valued at £0 as a result.

    Although you might be tempted by stocks and shares, with the markets where they are you have to be prepared that they may go down as well as up in value. Hedge your bets! But also negotiate hard for a pay rise and then set aside any extra cash you receive into your savings.

    Your conundrum isn’t unique and a lot of millennials who would like to get onto the housing ladder are in the same boat.  With the £10k gift you’re a lot closer than you would be.

    My final advice is that in your enthusiasm to own your own place, don’t rush into a long-term purchase. Think about buying something to flip onto the next person. Make sure your first property doesn’t become a millstone.

    James Max presents the Early Breakfast Show on TalkRADIO and is a qualified chartered surveyor. Follow him on Twitter: @thejamesmax