Most of us expect that one day we will own our own home. However the harsh reality is that this may not be as easy as we first thought. In the current mortgage market, you need a deposit of at least 5% of a property’s value to get a mortgage. However to get the best mortgage rates, you may need a deposit of at least 20%. The typical deposit required by first-time buyers is twice the average young person’s earnings at £42,500. Ouch! So, saving for a deposit isn’t easy and when we’re talking about those sorts of figures, it isn’t going to be quick. But it can be done and here are some tips to help you achieve your home owning goal.
Play the long game
Saving for a home is a marathon, not a sprint. Saving is going to take years, so there’s no point devising a savings plan that gives you zero flexibility or money for fun, which you are going to give up on after two months. Be prepared to implement a savings plan that is doable and still lets you enjoy your life.
You will need to budget. Just trying not to spend and hoping you will have money at the end of the month rarely works. Creating a budget doesn’t need to be complicated and there is already a template and some fantastic tips here.
Squeeze those non-essentials
There are simple things you can do to save money each month. Learning to cook was one of the best things I did to save money. Spend a bit of time at the weekend planning out meals, shopping and cooking a few meals to freeze for quick post work eating. Buying a coffee flask is another great investment. You will soon find the money you save not buying coffees, lunches or takeaways for dinner stacks up, and will usually find the quality of meals actually improves.
Open separate savings account
Making your money harder to get at makes it harder to spend! Once you have figured out how much you can afford to save each month, set up a direct debit to take it straight out of your account soon after pay day. Investigate the best savings accounts available. Instant access ISAs will have lower interest rates than ISAs where you can’t touch it for a set period of time. And if you’re in this for some long term saving, you shouldn’t need access to your money anytime soon, right?
Have an end goal
It’s hard to save when you don’t know your end goal. By calculating how much mortgage you can afford, you will know how much deposit you will need. Use a mortgage calculator to enter your wage and potential deposit, get an idea of the size of loan you can get. This at first can be a bit of a disappointment when you then hop into Rightmove and see what homes in your price bracket actually look like – goodbye 4 bedroomed, 3 bathed semi with a south facing garden and double garage!- but it is good to get a realistic idea of what your wages and deposit will get you, and if you need to save more to get a home that meets your standards.
Take advantage of Government schemes
The government has launched a number of schemes to help first time buyers, so check what’s available in your part of the country. Equity loans are available for new builds, where the government will lend you up to 20% of the cost of your new home so you only need a 5% cash deposit and a 75% mortgage. Help to Buy ISAs are available throughout the UK and the government will boost your home saving piggy bank by 25%, up to a maximum of £3000. A helping hand to get on that housing ladder is always appreciated, so do your sums and see what scheme works best for you.
You may not be able to own your dream home now, but that doesn’t mean you should give up on house buying altogether. Those stepping onto the property ladder typically save £2,300 a year compared to those who rent, so accepting a ‘now home’ and getting yourself on that first rung of the property ladder will make that dream home one step closer.