16th February 2017 at 4:29pm
Are you building a budget for your first home?
These days getting on the property ladder is proving pricey. With the average cost of a house deposit around the £33,000 mark, there’s increasing pressure on house buyers to have a good level of cash up front.
It might seem a daunting prospect, however, with careful planning and forethought, there’s no reason why your dream house need be a pipe dream.
Check out these simple saving tips on how to budget for this big ticket purchase.
Saving for your first home
The first step to getting on the property ladder is taken well before you get the keys, you need a deposit. The average first-time buyer puts down a 20% deposit on their first home, it might appear a lot, but there are ways and means you can make this achievable.
The Money Advice Service (MAS) have pulled together a few nuggets of sound advice that may help you make that first step.
Weigh up your options:
- Bank of mum and dad. Consider parental help through a cash gift, informal loan, or a more formal arrangement with your mortgage lender to provide part of the deposit or act as guarantor (in which case, they become liable for paying the mortgage if you can’t).
- Buy with friends or family. You might be able to club together to buy a home jointly, but think through how this will work later on if one of you wants to sell their share.
- Shared ownership. If you currently rent a council or housing association property and have a household income of less than £80,000 (outside London) or £90,000 (inside London), you might be eligible to buy part of a home and rent the rest. This reduces the size of the mortgage and deposit you need, so you pay less for the mortgage but also have to pay some rent.
- Help to Buy and other shared equity schemes. These help you buy a new-build home. You typically need a deposit of only 5% and the government or the developer lends you the rest of the deposit – up to a further 20%. Under Help to Buy this loan is free for the first five years but you need to plan how you will pay the yearly fee that kicks in from Year 6 onwards. It is only available for new-build homes.
- Help to Buy Mortgage Guarantee scheme. Available now to help you buy a new-build or older home, you put down a deposit of between 5% and 20%.
- Valuation and legal fees cover. Some mortgage deals also cover your valuation and legal fees, reducing the amount of up-front money you need to find on top of the deposit.
Checking house prices in the area where you want to buy, and deciding whether any of the options above could be for you, will help you work out the size of the mortgage deposit you’re going to need.
Work out how much to save each month
Once you have figured out the deposit, you need to start planning how you’ll reach this goal. The key to building up a deposit is, quite simply, to start saving as much as you can as soon as you can. Regular saving is more effective than relying on irregular one-off sums. How long it will take depends on how much you can afford to set aside each month.
The MAS Savings calculator is an effective tool for helping you work out the numbers. The calculator can help you understand how long it will take to save a specific amount, or how much you need to save to have enough by a particular date. And be as realistic about how much you can afford.
You need to then plan where you are going to keep your savings. It’s worth setting up separate account for this goal. The best place will depend on exactly when you are planning to get on the property ladder.
For example, if you are saving over a short period of time, say a year, you might want to think about a regular savings account or an easy access account. If it’s a medium to long-term goal you might want to look at accounts that tie up your money but offer better interest or taking out an ISA and make the most of tax-free savings.
MAS have also created a handy table of types of cash savings accounts worth considering. And, it’s also worth checking out comparison websites, they can be a good starting point for anyone trying to find a savings account tailored to their needs.
Don’t forget about the other costs
As well as your deposit, you’ll also need to save up for stamp duty (if it applies), moving costs and legal fees. To avoid any nasty surprises, it’s important to do your homework first. Money Super Market offers a handy guide ‘The costs of buying your first home’ which can provide a good place to start your research.
Strike a balance
Saving for a house deposit can seem daunting, however if it’s something that you want, it is achievable. You just have to work out what you can afford. It’s about balancing what you want now with what you want in the future.