To get a good mortgage deal with low interest rates, you often need a dauntingly big deposit. Follow our step-by-step guide on how to make saving for a house or flat manageable and turn your home-buying dream into reality.

• Step 1 – Weigh up your options
• Step 2 – Work out how much to save each month
• Step 3 – Get started
• Step 4 – Watch your savings grow

Step 1 – Weigh up your options

The average first-time buyer puts down a 20% deposit on their first home, which could mean finding a daunting £20,000 or more.

However, the supply of 90% mortgages is increasing and there are a variety of other ways to reduce your payments:

• Bank of mum and dad: parents might help with cash gifts, informal loans, or more formal arrangements with the mortgage lender to provide part of the deposit or act as guarantor (in which case, they become liable for paying the mortgage if you can’t).
• Buy with friends or family: you might be able to club together to buy a home jointly, but think through how this will work later on if one of you wants to sell their share.
• Shared ownership: if you currently rent a council or housing association property and have a household income of less than £80,000 (outside London) or £90,000 (inside London), you might be eligible to buy part of a home and rent the rest. This reduces the size of the mortgage and deposit you need, so you pay less for the mortgage but also have to pay some rent.
• Help to Buy and other shared equity schemes: these help you buy a new-build home. You typically need a deposit of only 5% and the government or the developer lends you the rest of the deposit – up to a further 20%. Under Help to Buy this loan is free for the first five years but you need to plan how you will pay the yearly fee kicking in from Year 6 onwards. It is only available for new-build homes.
• Some mortgage deals cover your valuation and legal fees: reducing the amount of up-front money you need to find on top of the deposit.

Checking house prices in the area where you want to buy, and deciding whether any of the options above could be for you, will help you work out the size of the mortgage deposit you’re going to need.

Step 2 – Work out how much to save each month

Once you know the amount of deposit you’ll need, make a plan to reach this goal.

Regular saving is more effective than relying on irregular one-off sums.

How long it will take depends on how much you can afford to set aside each month. Be realistic about how much you can afford.

For example, suppose you want to buy in three years’ time and will need £10,000: you’ll need to save around £265 a month.

But, if you only feel comfortable saving £150 a month, you will need to plan on buying in just over five years’ time.

This might seem a long wait, but it is better than trying to save too much and giving up altogether.

Step 3 – Get started

Strike while the iron’s hot! Decide where to stash your savings.

Maybe you already have an online bank account letting you set up a separate pot for your goal. Otherwise, open a separate savings account.

You could opt for an instant access account. But, since it will most likely be some years before you’re ready to buy, you might want to look at accounts tieing up your money but offer better interest.

• Find out about Direct debits and standing orders.
• Read our guide on Cash savings at a glance for ideas

Price comparison websites

Comparison websites are a good starting point for anyone trying to find a savings account tailored to their needs.

We recommend the following websites for comparing savings accounts:

• Money Saving Expert
• Money Supermarket
• Which?

Remember:

• Comparison websites won’t all give you the same results, so make sure you use more than one site before making a decision.
• It is also important to do some research into the type of product and features you need before making a purchase or changing supplier.
• Find out more in our guide to comparison sites.

Step 4 – Watch your savings grow

Review your savings account at least once a year to check you’re getting the best rate of interest.

Make sure you use your yearly cash ISA allowance so you don’t pay tax unnecessarily.

Many ISAs tempt you with a bonus for the first few months or year but then fall back to dismal rates.

What to do next

• Open a savings account if you don’t already have one – go online or pop into your bank or building society.
• Check whether you can reduce the deposit you need, for example, through a Help to Buy scheme or family support.
• Set up a regular payment into your savings account every month. Use this downloadable template (DOC 25KB) to send a standing order instruction to your bank.

This article is provided by the Money Advice Service.