How do I save money for a house?

Saving up before a mortgage can be hard work, but there are ways to speed up the process.

If you’re preparing to save up to buy a home with a mortgage, you might be wondering where to begin — after all, you’re saving up potentially tens of thousands of pounds. Here’s everything you need about how to save up for a house, from working out how much to save, to where to put it to get the best interest from it. 

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How much deposit do I need?

How much of a deposit you’ll need depends on a couple of factors. What you earn and how expensive a house you want to buy.

Firstly, you need to know an approximate amount that you can afford to borrow based on your earnings. You can find out how much mortgage you are likely to be offered by checking with a lender or with a mortgage broker. It’s normally about four times your salary, but can be higher in some cases.

The average home in the UK is around £270,000, but what that gets you will depend on the location. You can see what’s on offer in your desired location by checking property websites such as Rightmove or Zoopla. The gap between the amount you can borrow and the place you want to buy is how much you need to save for a deposit. 

But even if you can borrow more than you need to buy the home you want, to get the best interest rates on a mortgage — or even be offered one at all in many cases — you will need to have some cash to offer up-front as a deposit. 

Typically, the more you put down as a deposit, the better interest rate you’ll be offered on your mortgage. You’ll ideally need more than 10% of the property value, but it’s possible to get mortgages with just a 5% deposit these days. The best mortgage rates go to people with a 40% deposit.

How much more do I need to save?

Sadly, the cost of the deposit isn’t all you’ve got to fork out when buying a house. You’ll also need to save more for other fees, like Solicitor Fees and Stamp Duty, along with moving costs — we’ve got them all listed in our guide on how much it costs to buy a house. 

How to start saving for a house

So now you’ve got a figure in mind, how on earth do you begin to save that much money? It helps to know what sort of timeframe you’re aiming to save it in.

Budgeting

The first thing to do is the dreaded budget. You need to see how much you can reasonably afford to set aside each month to go towards your house deposit. You can start relatively small and work it up, if you want to, or you can budget more aggressively to reach your target faster.

Thankfully, budgeting doesn’t need to include all the spreadsheets it used to. You can make use of budgeting features in your own banking app, if it has it. Newer, online-only banks, like Monzo, Chase, Starling and Revolut all have features built in that can help you work out how much you typically spend every month and how much you can afford to put aside. You’re also able to see categories that you tend to overspend in, to find places where you can cut down your spending.

Some of the high-street banks have added these features to their apps, so it’s worth seeing what your bank has available before you jump ship. 

Auto saving

Sometimes, apps have auto-saving features. This can be a fantastic way of putting aside money automatically. Features can include putting a set amount every week or month, rounding up your purchases or putting away an amount the app thinks you can afford. 

One thing I like about Chase’s round-up feature, which I use regularly, is that the money goes into a pot that’s not visible on my home screen — I can’t see how much I’ve set aside without actively looking for it, making it less tempting to withdraw. 

Monzo can be linked to IFTTT (If This, Then That), a great automation tool that can be used for everything from scheduling your lights to come on at sunset to saving money when specific things happen. The money savings options range from pretty standard (save weekly into a pot) to outright silly (save money when it rains or when you hit your step goal for the day). 

Apps like Plum can also link to your bank account and look at your spending, choosing to put away money that you can afford to save. We have a whole guide on auto savings with some of the apps and tools available.

Regular savers

This is actually a type of savings account rather than a method of saving, but it’s worth a mention as it can help you get into a good saving habit and there are great rates on offer, and you can set up a direct debit to have the money moved straight into savings every month. 

Regular savings accounts usually have a higher savings rate, but instead of adding a lump sum at the start, you save away a set amount of money each month — usually ranging from £100 to £300. 

These accounts can vary a bit, so sometimes the money is locked away for the period, with interest paid at the end; or it could be flexible for you to make withdrawals whenever you want to. You also might need to open a current account with the provider to get one, and sometimes need to have one already. Our best buys table of regular savers is a good place to look for these, and you can get rates as high as 7.1%.

Where to put your savings

Once you start saving up, you’ll want to put the money somewhere it will grow. Depending on how you save the money to start with, it might already be in some kind of savings account or pot, but ideally, the highest paying one you can find, the better. There are some types of savings accounts that are more suitable for your house deposit than others.

Lifetime ISAs

Lifetime ISAs are undoubtedly the best place to put your savings towards a deposit, but there are caveats, and eligibility requirements. And there are plans to remove the Lifetime ISA, in favour of a new Homebuyer LISA, we share what we know about that below. 

Firstly, you need to be aged between 18 and 39 to open one. If you’re older than 39, you need to consider a different account, if you’re not 18 yet, you can open one when you turn 18, as long as the Government hasn’t scrapped it in the meantime, or providers stop offering them.

These accounts are great, because you can earn an extra 25% from the Government on up to £4,000 of your deposits each year. That’s £1,000 per year that you’re saving that could be added to your pot.

You have to either use the Lifetime ISA to save for your first home or after you turn 60 to get that Government cash though — they’re the only two uses that will allow you to use the money without penalty, although there are exceptions made in certain circumstances. If you want to withdraw the money from your LISA, you lose 25% of the pot, which means you’re losing 6.25% of what you put in (as only 20% of what’s in there will be the Government’s top-ups). 

When using a Lifetime ISA to buy a home, you need to buy one that costs £450,000 or less. So if you planned on buying a home for more than this, it wouldn’t be the best choice for you — and you can’t withdraw without penalty to buy a home for more, either. 

We have more details on Lifetime ISAs in our full guide, where we also cover how it works when you use the LISA for retirement instead of your first home. 

Homebuyer ISAs

The new ISA just for homebuyers is due to launch in 2028, which isn’t actually that far off when you’re saving for something like a house deposit, so it’s worth a mention. 

We don’t know a great deal about the new ISA yet, but it could be worth keeping in the back of your mind if you’re planning to begin saving for a house soon.

This ISA will replace the Lifetime ISA, but will only be for first-time buyers. There will be changes to the way that the bonus is paid that’ll mean you can’t earn interest on the bonus, but there won’t be penalties for withdrawals. 

You might be allowed to transfer money from a Lifetime ISA into the new account, and you will almost certainly be allowed to keep your old Lifetime ISA open, so if you’re keen to get saving straight away, you shouldn’t lose out by starting now rather than waiting for the new ISA to be launched.

ISAs

The next best option is an individual savings account (ISA). With an ISA, any interest earned is protected from tax. You have a total allowance of £20,000 per year across all your ISAs. This means that you can save up to £20,000 per year into all your ISAs combined. This includes deposits into the Lifetime ISA, so you could save £4,000 into a Lifetime ISA and another £16,000 in other types of ISA in the same tax year. 

There are several different types available, including easy access ISAs, which would let you withdraw your money whenever you want; or fixed-rate ISAs, which lock away your savings for a period of time in exchange for a slightly better rate. The one you go with will depend on how soon you plan on buying your home, but you could keep putting the money into fixed accounts until you’re ready to buy. 

Savings accounts

If you exhaust these options, you could look into standard savings accounts. Again, you can get easy access savings accounts as well as fixed-rate savings accounts. You’d want to look into whether you need to pay tax on your savings interest if you have a lot saved.

There is also a new type of savings account worth considering. This is a little different, as the interest rate depends on you getting a mortgage with the provider. The account is Tembo’s Homesaver account.

With this one, there’s an underlying rate of 3% AER (variable). This is then topped up with two 12-month bonuses. The first of this is a fixed rate of 1.55%. 

Then there’s another 1.2% 12-month homebuyer bonus. To get this, you need to get a mortgage with Tembo within 3 years of first depositing into the account. That can get you a total of 5.75% in the first year. This could be a good account to save into if you’ve already exhausted your Lifetime ISA, as it’s the highest-paying account available of its type. 

Can I invest my house deposit?

There’s nothing stopping you from investing your house deposit in stocks and shares, but you should be careful with this if you plan to buy in the next five years. Investments aren’t a place to put your savings in the short term. 

Anything you invest should ideally stay put for at least five years so it’s not heavily impacted by any turbulence in the stock market. After all, a stock market crash as you’re about to cash out could delay your home purchase for years, as you wait for the market to recover.

However, if buying a house is further down the line than this, you can look into Stocks & Shares Lifetime ISAs or Stocks & Shares ISAs to invest your savings and grow it over the long term. It’s generally recommended to withdraw it from investments a few years before you plan to buy, though.