Purchasing your first home is by no means an easy feat and requires patience, dedication and a heavy hint of realism. If you are at the start of your property purchasing journey then the idea of saving up such a large sum may feel, unsurprisingly, daunting. It can take an average person 8 years to save for a home deposit but there are plenty of handy tips to keep you on track and your motivation going, as you save. Here, we outline the best ways to get started and, hopefully, you will have those all-important keys before you know it!
- Keep your plan clear and realistic
Before you start saving, it is important to set a realistic goal of how much money you will need. Find out your affordability and research the area in which you wish to buy. For example, build up a good understanding of local property prices on websites such as Rightmove, and explore all options. Are you looking for a flat? A detached house? The type of home you desire and the area it is in will both have an impact on how much you need to save.
The vast majority of residential mortgages ask for a minimum of a 5% deposit. Let’s say a property is £200,000, this will be a saving target of £10,000. If you are aiming for a 5% deposit, it is important to be aware that your interest rates may be higher. In general, the lower the deposit, the more interest you will pay over time. This Money Saving Expert Deposit Mortgage Calculator is very helpful in providing a savings estimate.
- What can you cut back on?
Life might be a little less adventurous for a while whilst you save, but we promise it will be worth it! Some ideas to consider are:
- Dissect all your outgoings and decide what you can live without. All the little things add up; try swapping a café coffee for a homemade one or pack a lunch for day trips. Do you have a monthly subscription you barely use? Scrap it. However, be kind to yourself. You don’t need to give up all of life’s luxuries- it isn’t sustainable, and you don’t want to be miserable.
- If you are renting and saving it can feel near on impossible. Consider downsizing your rental for a cheaper option. A houseshare can reduce your outgoings or, if you are lucky enough to have willing relatives, move in whilst you save.
- Look at your utility bills. Scrutinise what you are paying and use comparison sites to see if you can reduce your outgoings.
- Re-evaluate your debt. If you have a high credit card bill, for example, research 0% balance transfer credit cards and see if you can reduce any interest fees.
- Save, Save, Save!
Once you have looked at what you can cut back on, begin the habit of regularly transferring money into a savings account. A top tip is to set up a monthly transfer so saving becomes a habit. With a savings account, money is often locked in and you will receive favourable interest rates.
Lifetime ISAs can be an excellent, tax efficient way to save money. Here, you can save up to £4000 per annum and the government will give you 25% on top, up to a maximum of £1000 in a tax year. The ISA is geared towards those saving for their first home or retirement and can only be used 12 months after the first payment. If you choose to withdraw your savings for any other reason, you will lose the government bonus. These are a great way of saving tax free, with plenty of incentive to keep your savings on track!
- What can the Government do for you?
Look into using a government scheme
There are various government schemes available to first time buyers that can be a way to get on to the property ladder. It’s worth doing your research and weighing up the pros and cons. One scheme you may want to consider is the Help to Buy Scheme is an equity loan provided by the Government up to the value of 20% of a new build home assigned to the scheme. Here, a first-time buyer contributes a minimum of 5% meaning that a total of 25% is raised towards the mortgage. This loan is interest-free for 5 years and is advantageous because a higher deposit enables first time buyers access to favourable interest deals.
The amount lent by the Government is dependent on regional caps. For example, in London, this can be used for a property up to £600,000 but this will be lower in other regions.
Saving up for a first home is hard work and takes time, patience and discipline but the rewards are high. Are you saving for a first home? Let us know your top tips below.