How To Start Saving For A House Deposit

How to save for your first home

Saving for your first home can seem like an enormous task. However, there are a number of services, tools and grants that are designed to make it easier to enter the property market. Of course, the most important thing is to make sure your finances are in order and to get started on a savings plan so that you can make the initial deposit.

How much can I borrow?

Figuring out how much you can borrow requires an honest assessment of what you can safely manage to repay over the length of your mortgage. Use our calculator to help you determine how much you can borrow. The calculator takes into account your income, your living expenses, your credit card limits and any dependants or debt you may have.

Put money towards your home deposit first

Do I need a 20% deposit to buy a home?

If you are going to borrow more than 80% of the property’s value, you will likely be charged Lenders Mortgage Insurance (LMI). This cost varies depending on your loan amount and percentage of the property value you borrow.

Saving tips for first home buyers

• Prepare a budget and stick to it. Avoid spending on non-essential items and impulse purchases, as this type of spending delays your dream of owning your own home
• Put money towards your home deposit first. Open a separate bank account, ideally a high-earning savings account, and set-up an automatic transfer for every pay day, and make top-ups whenever possible
• Pay off your credit cards and any personal loans or hire purchase agreements. Reducing or eliminating these debts will help you increase your borrowing power
• Record and analyse your expenditure over a month to reveal opportunities for savings. Write down everything, including miscellaneous items, such as coffees, taxis, presents and meals out. These everyday extras can add up over time. For instance, two takeaway coffees a day can cost up to $200 a month; money that could be put towards saving for a deposit for your first home
• Look around for deals. These can be available from many service providers, from switching supermarkets to bundling all your insurance with just one insurer.

The extra costs everyone forgets about

When it comes time to making an offer on a property and moving, there are a number of additional costs that frequently get forgotten about. Some of the fees to look out for are building inspection fees, pest inspections, solicitor/conveyance fees, loan application and property valuation fees, as well as stamp duty.

Moving costs can also add up, such as furniture removal, cleaning, insurance for building and contents, electricity, telephone and internet, etc. See our breakdown of the most overlooked costs so that you don’t get caught out.


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Saving money for a deposit

To get a good mortgage, you often need a dauntingly big deposit. Follow our steps to make it more manageable and turn your home-buying dream into reality.

Step 1 – Weigh up your options

The average first-time buyer puts down a 20% deposit on their first home, which could mean finding a daunting £20,000 or more.

However, the supply of 90% mortgages is increasing and there are a variety of other ways to reduce your payments:

• Bank of mum and dad: parents might help with cash gifts, informal loans, or more formal arrangements with the mortgage lender to provide part of the deposit or act as guarantor (in which case, they become liable for paying the mortgage if you can’t).
• Buy with friends or family: you might be able to club together to buy a home jointly, but think through how this will work later on if one of you wants to sell their share.
• Shared ownership: if you currently rent a council or housing association property and have a household income of less than £80,000 (outside London) or £90,000 (inside London), you might be eligible to buy part of a home and rent the rest. This reduces the size of the mortgage and deposit you need, so you pay less for the mortgage but also have to pay some rent.
• Help to Buy and other shared equity schemes: these help you buy a new-build home. You typically need a deposit of only 5% and the government or the developer lends you the rest of the deposit – up to a further 20%. Under Help to Buy this loan is free for the first five years but you need to plan how you will pay the yearly fee that kicks in from Year 6 onwards. It is only available for new-build homes.
• Help to Buy Mortgage Guarantee scheme: available now to help you buy a new-build or older home, you put down a deposit of between 5% and 20%.
• Some mortgage deals cover your valuation and legal fees: reducing the amount of up-front money you need to find on top of the deposit.

Checking house prices in the area where you want to buy, and deciding whether any of the options above could be for you, will help you work out the size of the mortgage deposit you’re going to need.

Step 2 – Work out how much to save each month

Once you know the amount of deposit you’ll need, make a plan to reach this goal.

Regular saving is more effective than relying on irregular one-off sums.

How long it will take depends on how much you can afford to set aside each month. Be realistic about how much you can afford.

For example, suppose you want to buy in three years’ time and will need £10,000: you’ll need to save around £265 a month.

But, if you only feel comfortable saving £150 a month, you will need to plan on buying in just over five years’ time.

This might seem a long wait, but it is better than trying to save too much and giving up altogether.

Step 3 – Get started

Strike while the iron’s hot! Decide where to stash your savings.

Maybe you already have an online bank account that lets you set up a separate pot for your goal. Otherwise, open a separate savings account.

You could opt for an instant access account. But, since it will most likely be some years before you’re ready to buy, you might want to look at accounts that tie up your money but offer better interest.

Step 4 – Watch your savings grow

Review your savings account at least once a year to check you’re getting the best rate of interest.

Make sure you use your yearly cash ISA allowance so that you don’t pay tax unnecessarily.

Many ISAs tempt you with a bonus for the first few months or year but then fall back to dismal rates.


5 STEPS TO SAVING FOR A HOUSE DEPOSIT

We outline five steps you can take to help turn your dream of owning your own home into a reality.

Owning your own home is the great Australian dream, yet for many these days that’s exactly what it can feel like – a dream. But no matter where you are in Australia, buying a home to live in or as an investment isn’t impossible.

Here are five steps you can take to help turn the dream into a reality.

1. Analyse your current spending

First, you’ll want to take stock of your current financial situation and spending habits. Gather as much information you can on what you’re currently spending. NetBank’s MySpend feature can group your spending into different categories, making it easier to see where your money is going.

2. Set a budget

Almost all good saving plans start with a solid budget. Once you know how much you’re spending, try to find areas where you can cut back.

Some changes to your usual spending habits will make a bigger difference than others. Scaling back your daily coffees can be great start, but moving back home for a short while (if you can) is likely to make a much bigger difference to your bottom line.

Once you know how much you’ll be spending each week, decide how much you can start saving. You’ll want to save as much as possible, but make sure your budget is achievable – you’re likely get more out of 12 months of moderate savings than 12 days of big savings. If you can, save a similar amount to what you expect your home loan repayments will be – that can help you budget over the longer term.

3. Get on top of your debts

It can feel hard to think about long-term saving if you’re struggling just to keep on top of the debts you already have. Consolidating your debts can be one smart way to create a path forward out of multiple payment dates and interest rates. And the fewer debts you have, the more likely your bank will look favourably on you when the time comes to deciding on your home loan application.

4. Start saving

Ideally, you’ll want to save at least 20% of the purchase price of the property you’re interested in as your deposit. If your bank or lender is loaning you more than 80% of the purchase price, chances are they’ll charge you lenders’ mortgage insurance or a Low Deposit Premium in order to protect themselves.

You can use our Savings Calculator to find out how long it will take you to reach your goal. If you’re not happy about the time it could take you, you might want to consider a more affordable property or adopt more stringent saving measures. Keep in mind there are some other upfront costs of buying a home outside of the deposit that you’ll need to be able to cover.

Set your savings aside in an account like CommBank GoalSaver so you can maximise your interest earnings and reduce your temptation to spend. You might even want to consider a term deposit account, which locks away your money for a set period of time while earning you some interest.

5. Look for helping hands

Depending on your circumstances, help may be available for you to reach your deposit saving goal sooner.

The First Home Owner Grant is a state government scheme in which eligible home buyers receive a one-off grant.

Finally, consider whether your parents or other family members may be willing and able to help you out with a one-off financial gift or interest-free loan.