How To Save For Your First Home In London – 12 Tips

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London is expensive, that’s no secret. Buying your first home in London can be a long process- not only because of the need for a large deposit, but also because high property prices mean that you’re likely to need a high salary to afford the mortgage. But it’s not all doom and gloom. 

Although it can take several years to build up your deposit, find the right location, and increase your salary, it is possible to get on the property ladder in London. We have 12 top tips to share with you on this topic. Read on to find out more about how to save for your first home in London. 

1. Get visibility of your current affordability 

Based on your current salary, and your current savings, what properties should you be looking at? It’s a great idea to start your journey by speaking to a mortgage broker like Better.co.uk to find out exactly how much you can borrow, based on your salary. 

Once you know how much you can borrow, you know where you stand. After speaking to a mortgage broker, you might find that you can borrow more than you expected. Alternatively, you might discover that you need to save a bit more towards the deposit to get the property you want. 

Speaking to a mortgage advisor can give you real clarity, and help you to build a plan of action on how to save for your first home in London. 

2. Put your savings in a high interest savings account 

When you’re building a large deposit, it’s a good idea to put your savings into a high interest savings account. That’s because the interest accrued can really help in boosting your deposit. Just 1% can make a huge difference in the amount of interest that you can gain over the course of a year. 

For example, if you have £50,000 saved, in a 2% interest account, you’ll gain £1,000 in interest over a year. However, if you have the same amount in a 4.8% interest account, you’ll gain £2,400 over a year. It certainly pays to put your savings in a high interest savings account when you are saving up for a house deposit. However, it is important to note that you’ll pay tax on interest earnings over £500 if you earn more than £50,000 in that tax year. 

3. Ask for a pay rise 

The best way to save for your first home in London faster is to increase your income. Of course, you can make cuts to your spending, but to maintain your current lifestyle, an increase in income is often the most efficient way of saving. 

And the best way to increase your income? Getting paid more for the work you already do. Asking your employer for a pay rise in the current climate can be trickier, but if you haven’t yet had a cost of living pay increase, asking for a pay rise is totally justified. 

Remember that the worst your employer can do is say no, and if that is the case, you can always ask them to review your pay again in 6 months’ time. 

4. Get to know your situation 

We have some exclusive information from the folks at Better.co.uk, that we’re sure you will find very interesting… 

Did you know that if you work in a certain profession, you may be eligible for exclusive rates of borrowing when it comes to buying your first home? Some mortgage lenders offer exclusive rates and deals for people in certain lines of work. 

Key workers, medicine, law, and accountancy are examples. These people may be able to borrow up to 6x their salary, whereas the average worker (someone who works in marketing for example) may only be able to borrow between 4.5-5x their salary. This is because ‘professionals’ are seen as a lower risk.

Speak to a mortgage advisor (Better.co.uk are brilliant), about your options when it comes to your line of work, and whether you are eligible to borrow more money. 

5. Use budgeting tools and apps 

A great way to reduce your spending so that you can send more of your money to your savings, is to use budgeting tools and apps to help you. 

Budgeting tools and apps will automatically categorise your spending, helping you to see where you may be spending more than you want to. You can also set a budget, and track how well you are meeting that budget throughout the month. The apps can also alert you to when you’re about to go over budget, or whether you’re on track. 

6. Decide on a location 

When you are saving up for your first home in London, the process can take several years. It’s a great idea to narrow down the location (or locations) you are interested in, so that you can monitor the market while you save. 

This means that you will be aware of market trends, and have a good idea about the type of home that you will be able to afford once your savings goals are met. 

7. Make your list of non-negotiables and nice-to-haves 

In addition to the above point on location, it’s also a good idea to keep in mind your ‘must-haves’, and your ‘nice-to-haves’ for your first home. For example, one of your non-negotiables might be a garden, and a ‘nice-to-have’ might be a parking space. 

Having this list can help you to streamline your options, and narrow down properties later down the line. It can help you decide whether you can afford the home you want, in the location you want, or whether you need to reconsider (or save more!). 

8. Cut the cost of your rent 

The cost of rent is often the highest expense for those living in London. If you currently live in an apartment by yourself or with a partner, you could consider a flat share to significantly reduce your outgoings. 

If you are able to rent a room in a flat share or house share in the short term, you could find that you are able to save thousands more in just one year. Alternatively if you live in a two bedroom flat, you may wish to rent the spare room to a tenant (or list on Airbnb) to reduce the overall cost of your accommodation. Just make sure that all legal processes are adhered to. 

9. Reduce your bills 

After your rent, your bills are likely to be high on your list of expenses as a Londoner. A great way to reduce your bills is to use a price comparison website to check whether you could pay a lower rate with a different provider. 

Key bills to consider are utilities, mobile phone and broadband. You could also review your subscriptions and get rid of anything that you don’t use often. If you rarely watch TV, you could also consider whether you could go without a TV license, which could save you yet another bill. 

10. Start a side hustle 

If you’re not able to increase your salary at work, you may wish to consider starting a side hustle to earn some extra money on the side. Your side hustle could be an extension of your day job. For example, if you’re a designer by day, you may wish to do freelance design work in the evenings. 

Alternatively, your side hustle could be something completely different from your day job. For example, you might be a marketing manager 9-5, but complete data entry on a freelance basis in the evenings and weekends. 

To get started with your side hustle, be honest with yourself about how much free time you have to dedicate to it. You may have one hour per evening, or maybe just a few hours a week available. It’s important to try and avoid taking on too much, so that you aren’t at risk of burning out. 

11. Have conversations with loved ones 

When you’re on a savings journey, you may need to have conversations with your loved ones about your goals and aspirations. It might mean speaking to your partner, and even your parents and friends. 

Obligations around spending money on holidays, gifts, and other expenses may hinder your progress when it comes to saving for your first home in London. Of course, saving is not the be all and end all, but if you can manage expectations, it will make the journey easier in the long run. 

12. Set savings goals and track them

Getting structured around your savings goals when it comes to how to save for your first home in London can be invaluable. When you know how much you need to save in total, you can divide that up to determine how much you need to save each month. 

For example, if you need to save a further £20,000 for your deposit, and you know that you can save a maximum of £600 per month, it will take 33 months (or almost 3 years), to save that amount. 

When you set that goal in mind, and track it each month, it soon becomes habitual. You could even set up a standing order to your savings account so that £600 automatically comes out of your account on pay day. 

FAQs

How much do I need to save for a house in London? 

This will depend on the price of properties in the location you’d like to buy in, your salary, and how much you can borrow. Talk to a mortgage broker such as Better.co.uk to get personalised advice on your affordability, and how much you should look to save. 

What salary do you need to buy a house in London? 

If you are buying with a partner, both of your incomes will be taken into account when it comes to buying a home in London. However if you are buying solo, you may need a much higher deposit in order to buy a property in London. 

The average cost of a property in London is over £500,000, but that is just an average. There are plenty of homes in London that cost less than £500,000. You might find that on a lower salary you need to look at smaller homes, or locations further out of town.  

Can I buy a home in London on a £50k salary?

The deciding factor on whether you can buy a home in London on a £50,000 salary is likely to be the size of the deposit that you have saved. 

To be sure of your options, chat to a mortgage broker like Better.co.uk to determine how much you could borrow on your salary. 

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