Four Ways to Save for a First Home: What Experts Recommend
As an average deposit of around **£17,000** is required for a first home in the UK, experts outline four different strategies for saving.
Saving for a deposit is a significant hurdle for first-time homebuyers in England, with an average amount of around £17,000 often required. According to financial information service Moneyfacts, a 5% deposit on the current average UK house price of £272,000, plus moving costs and legal fees, totals approximately £16,850. Experts suggest four different saving strategies to tackle this daunting goal.
Highlights
- Setting up a regular savings account and depositing money the day after getting paid helps make saving a routine, like another bill.
- The government-backed Lifetime Individual Savings Account (LISA) offers a 25% bonus on savings up to £4,000 annually.
- Starting to save early leverages the power of compound interest, leading to larger sums over time.
- Some lenders offer low or no-deposit mortgage deals, and parental support also serves as a crucial resource.
Details
Anna Bowes, a savings expert at financial advisers The Private Office, recommends depositing money into a regular savings account immediately after receiving a salary. She describes this method as becoming "like another bill, but one that you can benefit from in the future." The type of account suitable depends on individual circumstances, with some high-interest accounts requiring a current account with the same provider. Locking money away for longer periods can also lead to better savings rates.
The Lifetime Individual Savings Account (LISA), supported by the UK government, provides a 25% government bonus on savings up to £4,000 per year. This means an additional £1,000 from the government if the full amount is contributed. However, funds in a LISA can only be used to purchase a first home up to the value of £450,000, a threshold that has remained unchanged since 2017. Withdrawing money for other purposes incurs a penalty, potentially leading to a loss of funds. The government plans to replace the LISA with a new First Time Buyer ISA, but details are not yet clear.
David Hollingworth from L&C highlights that an increasing number of lenders offer mortgage deals with low or no deposit required, some starting from £5,000 and allowing borrowing up to 98% or 99% of the property purchase price. While these options may not be suitable or accessible to everyone, they provide an alternative for first-time buyers. Additionally, a survey by the Nationwide Building Society indicates that over half of parents who charge their adult children rent contribute some or all of that money towards helping their children save for their own home.
Why it matters
Saving for a deposit is a significant barrier for first-time homebuyers amidst challenging housing market conditions. These saving strategies and government support schemes can provide crucial guidance for individuals aspiring to achieve homeownership. Starting early and utilizing appropriate financial tools can simplify the process by accumulating larger savings over the long term.