Saving while renting
How to save for your own home while renting
Saving enough money to buy your first home can be a real challenge - even more so if you’re having to pay rent each month as well. So how can you do both at once?
Here are some pointers to help you along the way
Before you start saving, first get rid of any expensive debts, such as pay-day loans, credit card debt or store card debt. If you have a student loan, the decision whether or not to pay it off depends on several factors, including when you studied. You can find out more at Money Saving Expert.
This could take some time and if your struggling then you can get free independent advice from the Money Advice Service. Then, debts under control, you can turn your attention to saving.
Traditionally, a first time buyer would need to save for a deposit of at least 5% of the cost of a home, and to take out a mortgage loan to cover the rest. In recent times more and more mortgages need a deposit of between 10 and 15%, so it’s worth looking around to see what mortgages are available.
Work out roughly how much you need to save to buy your first home.
When you’re looking at mortgages you’ll see they’re named things like ‘95% LTV Fixed Rate Mortgage’. The percentages range from 95 down to 60 and indicate the amount you have to borrow against the value of your property - known as the Loan to Value (LTV).
The more you can afford to save as a deposit, the better the rate you’re likely to get and the lower your monthly repayments.
There’ll also be extra costs on top of that, such as legal and removal fees.
You can then make a plan to work out how to save that sort of money, including how much to set aside each month. The Money Advice Service has a useful calculator to help you understand how long it will take to save a specific amount, or how much you need to save to have enough by a particular date.
Be realistic about how much you can afford, even if it means you have to wait a bit longer before buying your own place.
Take a look at our recent article on How to save for a house deposit.
Regular saving is more effective than relying on irregular one-off sums. But, either way, make sure you put your money to work to get the best rate of interest on your savings.
You might put your money into a great savings account or use a scheme like Help to Buy or Lifetime ISAs. Although Help to Buys are no longer available to new customers, if you already have one then you can continue saving into your account until November 2029.
See if you can at least shave some money off your rental bill. For example:
- Move to a smaller house or flat in a cheaper area.
- Share a place with others to help cut your rent and bills.
- If you have a parking space or storage space you don’t use, consider if you could make money from it, being sure to first check your rental agreement to see what’s allowed.
- Consider renting an unfurnished home, as it can be cheaper. Getting your own furniture needn’t be expensive and you’ll need it when you buy your first home anyway - try charity shops or one of the many free furniture websites online, such as Preloved. Take your time and accumulate it bit by bit.
Start thinking like a property owner: turn off the lights behind you, for example, and turn down the thermostat – turning down central heating by just 1 degree can cut your annual energy bill by £80, according to Energy Saving Trust.
Before you cut back on the good stuff, like holidays or nights out, ensure you’re not paying over the odds for boring but essential services like gas and electricity, internet and insurance.
One of the easiest ways to do this is to compare deals from comparison websites and then switch to a cheaper deal.
You want that deposit back when you leave your rental. So, look after the property and leave it in a good state.
For more advice on ensuring you get your deposit back, and what to do if your landlord refuses to return your money, then see this advice from Shelter.
Here comes the really hard bit: spending less.
Check your bank statement and have a look at what you're spending on. A budgeting app can also help, as they enable you to view your income, outgoings and spending habits all in one place.
You could try a different approach to spending on goodies. How about each time you want to treat yourself, say to spend £50 on a new pair of shoes, you first save £50 before splurging?
You’re likely to need to cut back on luxuries to some extent to reach your saving goals - the classic tip is to ditch that pricey morning takeaway coffee, but if you’re now working from home more often, why not save the money you would have been spending on commuting? And if you’re no longer buying lunch every day, that money can also be put towards a deposit. Even the cost of a coffee can add up over time.
While you may not want to forego your pre-work cuppa, you should at least ensure you’re not wasting money on things like subscriptions that you no longer use.
Also, start making the most of things like loyalty cards and cashback.
Don't overdo it
Be sure not to over-stretch yourself. Re-think your saving goals if they’re causing you stress or real financial hardship. You may just have to save a little less each month for a little longer.
Saving a big sum for a deposit isn’t easy, least of all while renting. It’s all about getting into good habits, that you can sustain over months and years.
Click on the sections below to explore what you need to know at each stage of your home buying journey: