Saving for a deposit is one of the biggest obstacles in getting onto the property ladder, but being aware of the many options available may help you to reach the sum you need
1. Fast-track your savings potential
Many young people understandably want to live independently from their parents as soon as possible, but forking out for a big rent bill every month doesn’t leave much money to save for a deposit.
According to Hamptons International’s Time to Save Index, released in 2016, moving back home could reduce the time it takes a single first-time buyer in England and Wales to save for a deposit from 13 years to nine years. Meanwhile, a couple moving back home could reduce the time taken to save up from three and a half years to 18 months.
2. Shared ownership schemes
If you're struggling to build up a deposit and to afford the mortgage on a whole property, you could buy just a portion. Shared ownership enables you to buy between 25% and 75% of a property from a housing association, and pay rent on the remainder. You'll still need a deposit, but the amount you have to save will be smaller, and in proportion with the amount you're buying. If you were planning to borrow a 90% mortgage on a 50% share of a £200,000 house, you'd have to put down a £10,000 deposit rather than the £20,000 you’d need if you were buying the whole property.
3. Regular savings
People find it hard to save. According to the Money Advice Service’s Savings evidence review, released in July 2017, four in 10 UK adults have less than £500 in savings to cover an unexpected bill. And, almost 75% of working-age people in the UK don't have a savings buffer equal to or exceeding three months’ worth of income.
You can make it easier to save by setting up a monthly standing order so your savings are transferred into your savings account as soon as your salary is paid. The best savings rates can be found in the money section of your newspaper, or on a financial product comparison website.
4. Get a government boost
The government offers two ISAs – tax-free savings accounts – designed to help you build up a deposit for your first home. Savings in a Help to Buy ISA are boosted by 25% with a bonus paid by the government (up to a contribution limit of £12,000). The minimum amount you need to save to qualify for a bonus is £1,600. New Help to Buy ISAs aren't available anymore, but if you opened your ISA before 30 November 2019 then you can keep saving into it and earn a government bonus towards your first home.
The Lifetime ISA (LISA) can be used for one of two purposes – buying your first home or saving for later life. Savings into this ISA also benefit from a 25% bonus from the government, and you can save up to £4,000 a year until you're 50. If you're considering this option it's good to act earlier rather than later, as you cannot open a LISA once you turn 40.
5. The bank of mum and dad
If the methods above aren’t feasible in the time you have, your parents might be able to help. If they don't want to give you an outright gift, they could lend the money to you, drawing up a contract setting out the terms for repayment and interest payable. Alternatively, they could act as mortgage guarantors, joint borrowers or offset their savings against your mortgage to reduce the amount of interest you have to pay every month.
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