Saving for a home in London

Reviewing your finances

Before making budgeting decisions, some people review their financial situation to understand their typical spending patterns. This can help estimate how much they might be able to set aside each month.

There are various ways that you may be able to review and boost your finances:

• Using high interest savings accounts. Some banks offer savings accounts with higher interest rates, which may increase the amount earned on existing savings

• Setting budget goals. Establishing budget amounts can help create a structure around saving, although outcomes will vary depending on individual circumstances

• Keeping track of spending. Monitoring regular expenses can provide a clearer picture of where money is being used and where adjustments may be possible

• Using money-saving apps. Some mobile-only banks, such as Monzo, Revolut and Starling, offer tools that can help you track your spending, create savings pots and acquire a clearer overview of your finances

Saving money whilst commuting

Travel costs in London vary widely and can be a significant part of monthly expenses. Some people adjust their travel choices depending on what works for their routine, though peak‑time travel may be unavoidable due to work or personal commitments.

Public transport

If you're travelling on the tube on a pay-as-you-go basis, fares vary between peak and off-peak times. Peak fares apply Monday to Friday (not on public holidays) between 06:30 and 09:30, and between 16:00 and 19:00. Off-peak fares apply at all other times and if you travel from a station outside Zone 1 to a station in Zone 1 between 16:00 and 19:00, Monday to Friday. You may want to check the times and areas you’re travelling to and from to help you save.

If you use National Rail services, there are also discounts available that can help eligible commuters save money when using public transport. If you qualify for a National Railcard, you can save up to a third on your travels.

Walking or cycling

If you’re within walking or cycling distance of work, this can help you save money that would otherwise be spent on commuting. Some employers also have cycle-to-work schemes to help cover the cost of a bike, so it may be worth checking whether your workplace offers one.

Keeping a social life while saving

Social activities can contribute to quality of life, and maintaining a balance between saving and leisure may vary from person to person. Still, there may be ways to save money, whilst also spending quality time with your friends:

• Home gatherings. Hosting friends and family at home can sometimes be less expensive than eating out, depending on the group’s preferences and arrangements

• Deals and offers. Some bars and restaurants offer deals and promotions, which you may be able to find by checking their social media or browsing sites like Groupon

• Free museums and galleries. London is a hub for museums and galleries, many of which are free. The Natural History Museum, Tate Modern and Science Museum are just a few examples of places you can visit on a budget

• Affordable entertainment. Fees vary, but open-mic nights or comedy clubs can offer a lower-cost way to enjoy live entertainment

Becoming a smarter shopper

A smart shopper is someone who looks for ways to reduce costs, such as charity shopping for second-hand clothing or comparing prices at local supermarkets. When you're shopping, choosing lower-cost alternatives, such as supermarket own-brand items, may help reduce spending.

Meal prepping

Making the most of your freezer and preparing meals in advance may help reduce food costs. For example, you could use your leftovers to make something new.

Cancelling subscriptions you don’t use

Subscriptions and memberships don’t always get used regularly, and this is money you could save towards buying in London instead. If you have multiple streaming subscriptions, you may want to review how often you use them. Similarly, if you have an expensive gym membership, you might explore more affordable options or home workouts, depending on what suits your lifestyle.

How much deposit do you need in London

Deposit requirements usually depend on lender criteria and property value. Many mortgage providers require at least 5-10% of the property's purchase price, but a larger deposit may offer access to better interest rates.

Increasing your deposit with side income and incentives

Sometimes exploring additional income sources can support savings. This will depend on capacity and personal circumstances, but some examples may include:

• Freelancing. Writing, graphic design, tutoring or consulting can help boost your savings with extra monthly income

• Selling unused items. Quality clothes, electronics and furniture you no longer need can be sold to free up some cash for your savings

• Investigating first-time buyer incentives. Schemes and offers for eligible first-time buyers can help increase deposits or offer lower deposit options, which may require less savings overall. Please note that terms and conditions apply

Choosing an area that suits your budget

London's neighbourhoods offer different property prices. Whilst Zones 1 and 2 typically command higher prices, outer London boroughs like Barking & Dagenham, Bexley or Croydon may offer lower entry points. Researching up-and-coming areas likely to benefit from regeneration projects and improved transport links may help to provide better value.

What matters most when selecting a location?

When saving for a home, it may be worth considering what the location has to offer. This could be a shorter commute to the office, or nearby bars and restaurants. Let’s take a look at some factors to consider:

• Commute. A more affordable home requiring £300 monthly travel and two-hour daily commutes might be more expensive than a pricier property near work Local amenities. Affordable properties in areas lacking shops, restaurants, parks and community facilities could be inconvenient and require travelling to access amenities

• Lifestyle preferences. Young professionals might prioritise nightlife, whilst families may focus on schools and green space

Preparing for a mortgage

Lenders often scrutinise financial behaviour when considering mortgage applications. Before applying, it may be worth considering a few factors lenders usually look at.

Improving your credit score

Your credit score can impact mortgage approval chances and the interest rates you're offered. You can check your credit report through agencies such as Experian, Equifax or TransUnion.

Some steps you can take to help improve your credit score may include:

• Correcting errors. Incorrect addresses, accounts you don't recognise or wrongly recorded missed payments can lower credit scores

• Paying bills on time. Setting up direct debits for regular payments may help avoid missed payment

• Avoiding closing old accounts. The length of your credit history can contribute positively to scores, so you may want to avoid closing older accounts

• Applying for a notice of disassociation. If you're financially linked to someone with poor credit through previous joint accounts, you can apply for a notice of disassociation to separate your credit profiles

• Registering to vote. If you haven't already, registering to vote can help to improve your credit score as it helps lenders to confirm your name and address ¹

Understanding mortgage types

When purchasing a home, you may encounter various mortgage types. Each has different features, and suitability can depend on individual circumstances. These options include types such as:

• Fixed-rate mortgages. These are a type of mortgage in which your interest rate stays the same for a set time. This is often between two and five years, though some lenders may offer 10 years or more. During this time, your monthly payments usually won't change, even if your lender’s rates or the Bank of England (BoE) base rate fluctuate

• Variable-rate mortgages. These often fluctuate with lender rates, which could potentially save money when rates fall but could also result in higher payments when they rise

• Tracker mortgages. These follow the Bank of England’s base rate. When the base rate goes up or down, your mortgage interest rate changes by the same amount

Independent mortgage brokers may be able to access whole-market deals and explain which products suit your individual circumstances.

There are also various schemes and offers that could potentially help eligible first-time buyers. If you’re getting financial support from your family or friends to help you get on the property ladder, the Bank of Family scheme may provide extra deposit support. Please note that terms and conditions apply.

Thinking about buying a new-build home in London? Take a look at one of our offers and find your new home today, terms and conditions apply.

References: 

1. https://www.comparethemarket.com/credit-cards/content/the-electoral-roll-and-your-credit-score/ ↩