Generally speaking (but not always) its First time buyers that need to save for a deposit. Existing homeowners (if they’re lucky), will have found that their property has increased in value, and that their mortgage balance has reduced. So for the purpose of this article we’ll assume we are talking about First time buyers only.
Before we look at the savings tips, lets see how much you (might) need to save.
According to the Halifax the national average price of a first home is £212,500. Your deposit could be as little as 5% (10% at the time of writing – still in Lockdown 3!), and anything upwards of that number. Lenders offer ‘special’ deals depending on how much deposit you have, so the bigger the deposit you can save the better. The national average deposit for first time buyers is 16%, so lets keep the numbers round and say 15%. This equates to roughly £32,000.
The average age of a first time buyer is currently 30. So your going to be saving your deposit during your 20’s. Lets assume that after you finish college, you go to university. Under normal circumstances you can expect to graduate at 21/22, so this leaves you 8 years to save that deposit!
To save you working out the numbers this is £4,000 per year, and £333 per month.
Now you know the numbers your aiming for, how do you do it?
Okay, so at the time of writing we are still experiencing lock down conditions due to the Covid-19 pandemic, but it wont always be that way. Research carried out by a national bar operator revealed that on average 26 – 30 year olds spend £66 on a night out. That equates to almost £300 a month.
Stop going on holiday!
The average cost of going on a holiday is around £1,400, so if you are a couple that’s £2,800, and if you’re a family then its roughly £3,000. When you factor in the money you spend whilst on holiday, it quickly becomes obvious that you can save a considerable sum of money each year.
Sell your car
Unless your car is essential because you need it for work or you live in a remote countryside location, then look at it as a luxury and decide if you really need it. According to a report commissioned by Kwik Fit, the average Uk motorist spends around £162 pcm running their car. This includes things like fuel, insurance and maintenance costs. Over the course of a year this is just under £2000, and over the 8 years we mentioned above around £16,000, or half of our deposit.
Use a LISA.
You can open one of these at 18, and you are allowed to save £4,000 per year. At the end of each tax year the government adds a 25% bonus. You must be aware though that there are strict rules and restrictions on withdrawals if you want to use the money for anything other than buying your first home.
If we take the numbers above and you manage to save £333 per month into a cash LISA paying 1% interest, you will reach your goal of £32,000 in just over 6 years.
So, as you can see, it is possible to save your deposit in at least 6 years, and if you are really strict it could be even quicker.
The trick is to set yourself a savings goal, and stick to it. Have in sight what you are saving for, be strict, and stick to your plans. The odd month without saving here or there is fine, but don’t take your eye off the ultimate goal.
Of course, if you are a ‘two’ and not on your own, then you can do the above in half the time. So, with valentines day coming up, find yourself a partner, and start saving!