The following post is written by Graham Clark from the personal finance website Moneystepper. They have recently released a list of 111 ways to save money on household bills, which includes some of the tips below and many, MANY more!
The percentage of UK households who live in rented accommodation is approaching 20%. This is the highest level since the 1960s. In the past few years, house prices have been increasing faster than wage growth and inflation, especially in the South East. At the same time, mortgage regulation has become stricter following the 2008 crash (this is actually no bad thing as you’ll see with Tip 5 below).
It’s no surprise therefore that many Britons find home ownership a dream that is moving further out of reach for them. However, we have three great, actionable tips that will help you save up that deposit for your dream home much more quickly.
Negotiate Your Rent
Our first tip is to understand the negotiating power that you have when it comes to your rent. Many renters simply coast through life accepting the “rent rises” that their landlords suggest every year. You want to stay in your house/flat, and the landlord says that prices are going up, so that’s that. Right?
Well, by simply accepting these continual price increases, you could be costing yourself hundreds, if not thousands, of pounds. Let’s look at a quick example. Say you’ve been renting from your landlord for 11 months, and your 12-month contract is coming to an end. The contract stated that rent would be £700 per month.
Your landlord has now contacted you saying that there is a new 12-month contract to sign if you wish to stay and that the rent is going up to £725 per month.
Most people will look at this situation and say “it’s only £25, might as well pay it”. Some people might do a calculation and work out that the £25 increase is only a 3.5% increase and will conclude that “3.5% seems normal”.
However, what most people don’t do is understand what power the tenant has here. If you reject the increase and you move out, the landlord needs to find a new tenant at £725 (assuming that is the market rent). That may take one month. Also, they will have to pay a finder’s fee from a letting agent, maybe spend some money touching up the property for it will rent, pay for referencing and generally deal with the hassle of getting a new tenant.
From a financial perspective, the next twelve months would earn the landlord £725 x 11, but they would have to pay, for example, £375 in letting agent fees and £400 in “spruce-up” costs and we’ll say another £200 in referencing, legal and other costs. Therefore, their net income would be around £7000.
Or, alternatively, you could make a counteroffer, highlighting how you have been the perfect tenant, how you always pay on time and how you keep the property in an excellent condition, and therefore you will sign for another 12 months, but actually with a REDUCED rent of £675 per month.
A Good Deal For All Involved
The landlord will be taken aback! But, more importantly, they’ll whip out a calculator or Excel and realise that instead of earning around £7,000 in the next year from our scenario, they could accept your deal and earn £675 for 12 months, which would give them £8,100.
Financially, it’s a no-brainer for the landlord. On top of that, you have to think about the time and the effort involved with finding a new tenant.
In reality, the numbers you choose are up to you. In our example, even if you proposed £625 per month, the landlord would still be earning more in the next year than finding new tenants at £725 per month!
What I would suggest is that you:
- Present the offer to your landlord in their language, highlighting the benefits (financial and otherwise) of sticking with you at a lower rent.
- Leave room for negotiation – if you offer £675 in this example, they will most certainly come back with an offer to keep it at £700.
- Don’t insult them. If you say “no, I don’t want to pay £725, I’ll pay £550”, you’ll find that you’ll be moving out pretty sharpish…
If you manage to succeed in our entirely realistic example above and agree to pay £675 per month instead of £725 per month next year, that amounts to an annual saving of £600. That will certainly help towards the deposit!
Be Flexible With Your Lease
Another tip for renters when it comes to negotiating your lease is to speak openly to your landlord about what they want from the lease. Some may want to have more flexibility and freedom and prefer to sign shorter leases. Others may prefer consistency and would prefer to sign a longer lease agreement.
The trick is to find out what your landlord’s motives are, and then make a proposition to negotiate the rent to meet their needs.
For example, say that a landlord is managing a property which they’ve had for years and have no desire to sell. It’s your perfect property (for now) and you are very stable in the area. In this case, you could maybe sign a two or even three-year agreement with your landlord, but in exchange for this guarantee rental over this period, you’d want a lower rent.
Again, you need to remember that the landlord is not the boss. You hold a lot of power in negotiations and you will find that if you approach it correctly, being flexible with your lease length could save your big over the course of the lease.
Just be sure to build in some kind of fall back. For instance, for a lease of 18 months or longer, it will be normal to build some stipulations into the contract saying that if you HAVE to leave the property due to some predefined circumstances, then you can do so (usually with a small financial penalty applied).
It’s a bit more complex than just saying “yes, I’ll sign the standard lease for whatever rent you are asking for”, but it’s going to be worth it financially!
Consider Downsizing Or Renting Out Additional Space
Have a look at your rented accommodation. Do you use all of it? Do you need all that space?
By giving up some space in the short-term, you can rapidly increase that deposit pot and buy yourself your own dream home more quickly.
The two easiest ways to do this are to get rid of the space or get someone else to fill it. If you don’t need all the space you have (for instance if you are a couple who live in a two-bedroom flat), then maybe finding a smaller one bedroom property whilst renting will allow you to save more in that deposit piggy bank!
Alternatively (with your landlord’s permission), you may be able to sublet your spare room to guests, either through sites like Airbnb or through longer-term options such as Spareroom.co.uk. This will inevitably end up paying for a good chunk (often more than half) of your rent.
And, it’s not just restricted to the rooms in your house. If you have a parking space with your property, and it’s in a good location near transport links to a city centre, common places of work (hospitals, schools, etc), then your driveway may be a lot more than you think.
Earning money on a spare room on your property, or downsizing to make sure that you’re not wasting space, all means additional money that can go towards your future house deposit.
If you have found these tips useful I would definitely recommend checking out moneystepper.com where Graham covers a wide range of topics from a personal finance point of view.