Buying a home is one of the best investments you can make, and it will serve you well both in the short term and in years to come.
A recent study found that the average person in Britain will spend over £63,000 on rent over eight-and-a-half years before managing to buy a property.
Imagine how much healthier your financial situation would be if that rent money could be put toward purchasing a home instead.
However, it can be incredibly challenging to get your foot on the property ladder. People are buying their first home later than in previous generations.
Many prospective homebuyers are relying on parental support into their 30s and 40s to put together enough money for a home deposit.
Most lenders require a deposit of at least 10% to approve prospective borrowers for a mortgage. And beyond saving for the deposit, prospective buyers will need to ensure that they have saved enough to cover conveyancing fees and any unexpected costs related to the purchase.
The prospect of saving so much can seem overwhelming, but there are some simple and savvy strategies that can help turn that dream of homeownership into reality.
1. Look into the government’s Help to Buy scheme
If you’re considering a newly built home, the government’s Help to Buy: Equity Loan scheme can help. Rather than a traditional mortgage that requires a deposit of at least 10%, with the Help to Buy scheme, buyers only need to put down as little as 5%.
The government then lends you 20% of the cost of your home, or 40% if you’re buying in London. For the first five years of homeownership, you won’t have to pay any interest on this government loan.
The rest of the cost of the home is covered by a mortgage from a commercial lender.
Not only does the Help to Buy scheme reduce the amount you’ll have to save for a deposit, but you’ll also have lower monthly payments for five years.
2. Don’t be afraid to ask your family for help
Money can be an awkward conversation topic in many families, but it may be necessary if you’re struggling to save enough for a deposit. And you’re certainly not alone: an estimated 60% of first-time buyers have received some type of financial support from their parents.
Helping one’s children get onto the property ladder can take many forms, whether that means opening a special savings account or serving as a guarantor on a loan. A financial gift can also make all the difference for a successful mortgage application.
Although lenders prefer to see that homebuyers have saved enough for a deposit, they also accept “gifted deposits,” as long as the giver and the recipient provide documentation about their relationship, the gift amount, and confirmation that it’s a gift and not a loan.
Of course, not all parents are in a position to gift their children some or all of the deposit.
They can still provide support in many other ways, such as researching properties, providing advice about smart saving strategies, and helping their children maintain a positive attitude during the stressful home buying process.
3. Cut back on extraneous purchases and avoid overspending
The best advice for prospective home buyers trying to save for a deposit is straightforward: cut back on nonessential purchases and avoid overspending.
You’ll be surprised at how quickly your bank balance will improve once you start cutting back on pricey expenditures such as holidays, dining out, subscription services, and new clothes.
Even small yet unnecessary purchases add up over time, so the more strict you are about living a frugal lifestyle, the faster you’ll save for that deposit.
However, even if you’re being militant about sticking to your budget and buying only the necessities, avoiding overspending is easier said than done.
It can be challenging to know whether you’re getting the best deal on essential goods and services. Using comparison sites to look for the lowest prices on insurance, energy, cars, travel, and more is a great way to find low prices on the services you need.
Another way to avoid overspending is by using a free browser extension whenever you make purchases online, in order to take advantage of available coupons and get alerts when products drop in price.
Likewise, if you’re currently pursuing an undergraduate or graduate degree, make sure that you’re taking advantage of all available funding sources, including bursaries and scholarships. Minimising your student loan debt will put you in a stronger position when applying for a mortgage and will make you more attractive to lenders.
4. Consider shared ownership options
The Help to Buy: Shared Ownership scheme is an innovative initiative to help people get on the property ladder by buying a share of a property (between 25% and 75%) and paying rent on the rest.
The rent that you pay goes to a non-profit housing association, thus ensuring that you’ll always be charged a fair rent price, even if you live in a sought-after location such as London.
With shared ownership, you’re only expected to put down a deposit on your share of the house or flat, so it will be significantly less than purchasing a property outright.
Later on, when you’re in a stronger financial position, you can purchase additional shares in the property through a process known as “staircasing,” possibly up to 100% ownership.
5. Make sure you’re looking for a property in the right place
The amount you have to put down for your deposit depends on the price of your home, which is largely influenced by where you’re looking.
Be smart about where you’re planning to buy. An up-and-coming neighbourhood is likely to be far more affordable than an established city centre area. You’re also likely to see a more significant jump in property values over time, which is welcome news to homeowners and especially first-time buyers.
Ensuring that the minimum deposit amount is in line with your income and saving goals may require adjusting the geographic area of your property search.
However, this could have unexpected benefits, as the cost of living is likely to be lower, as well. You may even discover an affordable area that really appeals to you, even if it wasn’t in your initial search radius.