How to save for a mortgage while renting
How to save for a mortgage while renting
Unless you have some very generous family members, saving up for a mortgage deposit can seem like a pipe dream. Especially when most of your salary goes to the landlord, where on earth are you meant to get the money from?
But it is achievable.
No dodgy deals or trust funds involved, instead you need to follow the right steps, tighten your belt, and get smart with your savings.
So, where to start? Here are our top tips on how to save for a mortgage while renting.
Step 1: work out how much you need to save
To kick things off, you need to set yourself a clear, achievable goal and work backwards from there.
The biggest cost when saving for your first home is the deposit. If possible, aim to save up the equivalent of 20% of the property price for the deposit...if not more. This is because the bigger the deposit you put down, the smaller the mortgage you need, which pays off twofold:
- Your mortgage is borrowed money - the more money you borrow, the more interest you must pay.
- By paying off a layer chunk of the property value, you’re seen as less of a risk to lend to, so you’re more likely to be offered a more competitive mortgage.
Next, you’ll need to work out how big a mortgage you’re likely to get, so speak to a mortgage advisor or use a mortgage calculator.
You’ll also need to factor in surveys, legal fees, valuation fees...and more. Read ‘Things first time buyers need to know’ to find out how much it’s likely to cost you.
Step 2: set yourself a budget
Now you’ve got a rough idea of the numbers, you need to set yourself a budget - this is one of the most important steps when working out how to start saving for a house.
The 50:30:20 method was designed as a simple and sustainable way to manage money. Coined by Senator Elizabeth Warren, the idea is that you divide your monthly post-tax income into three categories:
- 50% for your needs = paying your rent, broadband, energy bills, phone contract
- 30% for your wants = spending on treats such as meals out and clothes
- 20% for your savings
Follow this and your savings will start building up.
...But what if you can’t afford to save 20% each month? Scroll down for more money-saving methods.
Step 3: reduce your rent
One of the most effective saving for a mortgage tips is to cut down your rent. Your rent will be your biggest outgoing cost - reduce it and your savings will start climbing up. There are a couple of options you could consider:
- Moving in with your parents - you can save a fair bit if your parents are willing to let you live at home for a while in a rent-free room. However, it’s good to set boundaries to avoid any conflict. Make sure to discuss what you’ll contribute to the house and how long you plan on staying for. They’ll be doing you a huge favor to help you get onto the property ladder, so make sure to stay in their good books!
- Get a flat mate for your spare room - make sure to check with your landlord first.
- Downsize - could you consider moving into a smaller, cheaper property?
- Move into a house share - living with housemates should reduce the amount you spend on both rent and bills.
- Move to a cheaper area - particularly if you live in a city, the cost of living varies significantly from borough to borough.
Step 4: reduce your bills
Now it’s time to get down to the nitty gritty - go through your bank statements and cancel any unnecessary direct debits. Magazine subscriptions, streaming services - be rigorous and work out whether you really need them.
£5.99 a month Netflix subscription adds up to nearly £72 a year. Could that money be put to better use in a savings account?
Step 5: make sure you’re getting the best deals
There are loads of websites out there that compare energy providers, internet, and phone contracts. It can seem like a bit of a faff but could help you save some much-needed cash. Find out more by reading ‘12 easy ways for renters to reduce their energy bills’.
So, roll up your sleeves and get hunting.
Step 6: supercharge your savings
To get the most out of your money, you could open a savings account. And one of the best savings account for a mortgage is a Lifetime ISA (LISA).
A LISA has two purposes - to help first-time buyers or help aid retirement, so anyone aged between 18 - 39 can open one. You can save up to £4,000 a year in your LISA and the government will top it up with a bonus 25%. So, if you save the full £4,000, you’ll have £5,000 by the end of the year.
However, if you withdraw the money with no intention of buying a house or retiring, you will most likely have to pay a penalty. Therefore, you need to be confident you won’t have to dip into those savings before the big day. Find out more on gov.uk here.
Step 7: can you increase your income?
Easier said than done, but always worth a try. Has your boss been hinting at a raise or a bonus? Follow up and don’t let it slip through the net.
Or could you go one step further and start looking for new job opportunities with better salary prospects? Could you take part in some free online training qualifications that could boost your CV?
Could you supplement your income with a side hustle or the odd babysitting shifts?
Step 8: download a money tracking app
Remember - you’re in it for the long haul, saving money takes time.
To make sure you stay focused, you could look into downloading an app that logs your spending and helps you save.
Banking apps such as Monzo and Yolt have clear dashboards that track your spending habits. They also give you the option of rounding up payments to the nearest pound and depositing the difference into a savings account.
One final tip: how to save for a deposit while renting
Be patient, stick with it, and remember the end goal! Getting your foot on the property ladder is an amazing achievement so don’t be disheartened if it takes a little longer than you thought.
As your savings start building up, there’s one other thing you can do to make sure you get a good mortgage deal: increase your credit score. Find out ‘How to boost your credit score in 11 simple steps’ here.