How to save for a house

Financial goals can look very different depending on the person, but owning a home is a goal many of us share.

Buying your first home can come with a lot of hurdles though. You need to navigate a process you’ve never gone through before, which comes with its own confusing jargon. But fear not – we’re here to help. We’ve gathered some tips that can help you save money towards a house, and understand the process more fully.

Building your deposit

Before a bank or building society is prepared to lend you enough money to buy your home, you’ll usually need to contribute a percentage of the purchase price from your own pocket.

How much deposit do you need for a house?

First-time buyer deposits are often tens of thousands of pounds, which can take years of saving. Your deposit amount depends on the house value and size of your mortgage. To get started, research house prices in the area you want to buy, then work out what percentage deposit you want.

While there are a few government schemes available to give first-time buyers a leg-up, and some ‘no-deposit’ mortgages may be available, the best deals out there will usually require a deposit – so it’s important to do the maths on whether these low mortgage deals are worth it in the long run.

The general rule of thumb here is the bigger your deposit, the smaller your mortgage and monthly repayments will be. For example, someone with a 5% deposit (and so a 95% mortgage) will usually pay a higher rate of interest on their mortgage than someone with a 20% deposit, and 80% mortgage. You’ll need to qualify to get a mortgage, which is often based on income and other factors like your credit history.

Is it better to save or invest for a deposit, or both?

Starting to build up your house deposit as a first-time buyer is as simple as saving what you can, when you can. Saving little and often after each paycheque can work well and gets you into a regular routine. You can also save larger amounts in bursts when it feels doable, like when you get a bonus. See what feels right for you and how you manage your money.

After you’ve put that money aside, you could choose to invest those savings to give them the chance to grow and potentially boost your deposit. But – and this is a big ‘but’ – if you’re planning to buy in less than five years’ time, you might be better sticking to cash rather than investing.

The reason for this is investments can go down as well as up in value. If the time when you were planning to buy coincides with a period where the market has fallen, it can mean that you lost money on your investment. This might mean that you need to rethink the timeline for purchasing.

It’s important to ask yourself before you invest the money for your deposit if you really have enough time for it to be in the market. If your answer is yes, and you understand the risks involved, your next step is opening an investment account and getting started.

But if you’re planning on buying sooner rather than later, the safer option of interest-paying cash savings accounts may be the smart choice.

Which account should you use?

First-time buyers often look to Lifetime ISAs (LISAs) when saving money for their house deposits. Lifetime ISAs were brought in by the government in 2017 and are unlike any other type of ISAs available today. They are specifically designed to help you save for your first home or your retirement, and they offer a 25% bonus on top of the amount paid into them.

However, the LISA is currently under review and may be replaced by a different product in the future. The government has said this new product will also be geared towards first-time home buyers.

But when the government’s giving you a bonus like that, there are strings attached. If you’re using the money from a LISA to purchase your first home, the cost of the property must be under £450,000. If you withdraw from your LISA to purchase a property worth more than that, you will incur a 25% penalty. So, check it’s the right type of account for you before jumping in.

Find out exactly what you can use a Lifetime ISA for

Lifetime ISAs come in two varieties:

• Cash Lifetime ISA
• Stocks and shares Lifetime ISA (also called investment LISAs)

Both varieties of Lifetime ISA come with the 25% bonus. But it’s only the stocks and shares variety that lets you invest your savings into funds and shares.

Due to the £4,000 cap on the amount you can save into LISAs each year, and the huge range of other savings and investment accounts out there, it’s a good idea not to limit yourself to a LISA if possible.

You could even use another type of ISA to help you save for your first home at the same time as a Lifetime ISA. Cash ISAs or Stocks and shares ISAs (if you’re investing) may be good options for squirrelling away some extra pennies. For Cash ISAs, the yearly deposit limit will lower to £12,000 annually from April 2027. Remember the overall ISA allowance of £20,000 – you can’t put in more money than that across all your ISAs, including your LISA, in any given tax year.

Learn more about having multiple ISAs

Be aware of other costs

When saving money for a house deposit, there are lots of charges and fees you need to also think about, including:

• Stamp duty
• Mortgage fees
• Solicitor’s costs
• Mortgage broker (if you decide to use one)
• Survey and searches fees
• Moving fees

Stamp duty is charged at different rates, depending on the value of your property. On homes worth up to £125,000 you’ll pay nothing, on the next £125,000 you’ll pay 2%, on the next £675,000 you’ll pay 5%, and the next £575,000 (i.e. property values worth £925,001 to £1.5m) you’ll pay 10%. Above that it’s 12%.

If you’re a first-time buyer, you’ll get a stamp duty discount if you buy a home worth £500,000 or less. On the first £300,000 you’ll pay no stamp duty, and then up to £500,000 you’ll pay 5%. But you won’t qualify for the discount if you buy a home worth more than £500,000.

Another important cost to think about is mortgage fees: usually, you’ll pay an arrangement fee and a valuation fee. Then there’s the solicitor’s costs – for doing all the legal work on the purchase – as well as survey and searches fees. Costs vary from around £500–£700 for a basic survey, up to £800–£1,100 for a more comprehensive one.

All of these fees vary depending on who you pick to do the work and what options you go for. For example, with a survey you could get the cheapest minimum one or a full belt-and-braces option that will cost much more. It might feel like a good move to choose a limited survey, but remember if you’re moving into a property that later reveals a breadth of issues, those will then be your responsibility and cost much more in the long run. Your final cost will be the movers’ fees, unless you decide to do it yourself.

Can I use my Lifetime ISA for solicitor fees and other charges?

You aren’t able to use your savings in a Lifetime ISA to pay for solicitors fees or other additional costs. Those will have to come from separate accounts, for example a Cash or Stocks and shares ISA. You’ll be able to use your LISA for your deposit and your mortgage, but it will need to be paid out directly to your solicitor to avoid any penalties.