How to Save for a House During the Looming Recession

One of the hottest topics around personal finance is how to save for a house. For fellow Gen Z-ers like myself, with the looming recession and current property prices in the UK (as well as many countries worldwide), it seems like a goal that is far, far away. This is especially evident as the ratio of supply to demand is hugely off-balance, so properties are being sold to the highest of bidders.

As a whole we’re putting ‘life goals’ further back compared to previous generations, and a lot of this has to do with inflation - so when grandparents say ‘by your age, I had a house and two kids’ - I just grit my teeth and know that houses and the cost of living were generally much, much lower back in the 60s.

However, over the past three years, I’ve been implementing numerous personal finance changes along with my boyfriend in order to put a deposit/down payment on our first property. Of course, the more you can put into the initial payment, the better a mortgage deal you will get. 

Some of these have been tried and tested by myself, and I’ve found them incredibly helpful, others I know are helping (or have helped, for the lucky ones!) friends get onto the property ladder.
 

1. Set realistic goals

First and foremost, you probably aren’t going to get a huge house for your first property unless you’re incredibly lucky (sorry). Your goal setting should be realistic. Until last year, I had no idea about average house prices or what sort of price I should be looking at for my first house - I just knew I should be saving as much as possible.

In a way, this actually worked against me. What I really needed to do was find out what sort of property I can afford based on both mine and my partner’s current salary. At the end of 2021 I sat down with the guys at the brilliant Go2Mortgage who were able to look at our affordability through documents such as both of our most recent bank statements, our credit scores, our P60s and current income.

They then gave us an average figure of the amount we are likely to be able to borrow in X amount of time. This gave us an actionable figure to work to, and we were then able to set timelines in terms of saving X amount per month over X years. Without this, we’d have been saving blind with no tangible goals.

I highly recommend speaking to a mortgage broker or advisor such as those guys - the type of documents you’ll need to provide will vary from country to country, but the principle is still the same.
 

1. Conduct a personal finance audit

As condescending as news stories around Gen Z over-spending on lattes and avocado on toast are, there is a lot to be said for having a look at your spending.

Having to submit my bank statements to Go2Mortgage was a very eye-opening, and admittedly, uncomfortable experience for me. I knew I was probably over-indulging in going out to eat and drink, but not to that extent, and honestly I felt a little disappointed in myself.

One issue that Go2Mortgage mentioned, which really stuck in my head, is that they have genuinely lost count of the number of people where you can go through their bank statement and there are items in there they don't use anymore, e.g. gym memberships, clubs and subscriptions. Luckily, I use all of mine, but I know many people who are in this situation!

I sat down and looked at my spends over the previous three months and categorised my spending into areas such as direct debits, food shopping, meals out, clothes and beauty products. I found that I was way overspending on going out to eat and clothes/beauty products.

I decided my 2022 New Year’s resolution was to not buy any clothes at all and stick to a £20/$24.47 budget per month for beauty products. I know it seems extreme, but I’m proud to say I have stuck to it and am well on my way to being able to put a deposit down, as well as additional savings to cover moving costs, legal fees etc.

All you need is Excel/Google Sheets and a copy of your spending over the past few months. Categorise these and calculate a total percentage of your monthly income, e.g. are you really happy with a third of your income being spent on clothing when you could reuse what’s already in your wardrobe? This can help you realise your areas of ‘weaknesses’ and again, set more tangible goals.
 

1. Transfer into your savings account as soon as you get paid

This is something I’m still working on admittedly, but one of the best ways to save is to pay yourself first - this is a huge factor you should consider when looking at monthly budgets. 

This means when you get paid, before you spend any of your salary, you transfer an amount into a separate savings account that you don’t touch. This gives you real-life practice as to what a monthly mortgage payment will ‘feel like’ and cause you to watch your spending accordingly.

As long as you're disciplined and don’t keep dipping into the savings that way, the priority, which is to save for your house, is taken care of from the start. 
 

1. Look into financial schemes that can help

I was lucky enough to set up a Help to Buy ISA savings account in 2019 before the UK government stopped allowing new savings accounts to be opened. I have a direct debit payment set up so that money is transferred into this every month. Whatever I have left at the end of the month goes into my house savings, but I definitely need to be doing this the other way around and paying myself first!

For those in the UK, there is now a scheme called a Lifetime ISA (LISA). This is similar to the Help To Buy ISA in that you can get a 25% bonus on your savings. There are some restrictions on its use, such as a penalty if the funds are used for anything other than a property purchase. 

There is also a maximum purchase price of £450,000 for the property the LISA is being used towards. Again, sitting down with a mortgage advisor can help you to explore options such as these.

There are actually a couple of private versions of Help To Buy that have recently come to the market, and lenders who will offer similar options. These aren't right for everybody - personal circumstances differ, and there are pros and cons to all of them. There will also be a variety of different schemes available worldwide.

As with anything, you need to be fully aware of what you're doing. If you speak to a proper professional and really explore your options, it might just be the answer you're looking for.