The uncertainty that surrounded the UK economy has been bolstered by projected growth of 7.2% in 2021. A strong economy is good for borrowers, so this is good news for first homebuyers, who are mostly millennials.
If you have saved your home deposit, there’s no delay. Get out there and find the home you can afford. 🙂 For everyone else, in this blog post, we provide tips on how to build up a deposit to buy your first home.
Even with a depressed housing market, dampening property prices nationwide, buying a home is still a oversized ticket item, and you’ll need to borrow the majority of the purchase price. If you meet home loan lenders’ criteria, they’ll happily lend you the funds. However, you will also be required to put some funds in, called a ‘deposit’.
Deposit – How much do I need?
The deposit is usually a percentage of the property purchase price, and it can range from 30% to as little as 5%, depending on the lender and the terms.
If you’re like most wage earners, you’re living from pay packet to pay packet. You’re not likely to have much in the way of saving, which makes it very hard to come up with the deposit to get onto the property ladder. So unless you can get the deposit from someone else, you’ll need to form a savings habit and put some of your wages into a deposit account ‘before’ you spend it.
So how much do you need to save for a home deposit, and how much do you need to save every month until you’ve got it?
Start with the end in sight
The trick to working this out is to start with the end in sight. Working backwards is a great way to determine how much you need to save for a home deposit. Please start with the required total; you will not know the exact amount, but you can get close to it by researching current entry-level property prices. Then you can break it down into monthly payments.
Let’s say you’ll need £150,000, and you know from asking a mortgage broker or your bank manager that you will need a 20% deposit. The math is easy: 20% of £150,000 = £60,000. You need to save £60,000 for your home deposit. Saving this money looks like Everest, but let’s continue because you can do it.
Deposit Savings Plan
You can determine how much you can save every month by finding where to cut current expenditures.
Lifestyle changes will be necessary if you’re serious about saving as much as possible. Yes, you can cut down on socialising. Maybe you must move back home or move to a cheaper rental property.
Write down all your current outgoings and use a free online budget plan to do the equations for you. Be ruthless in your honesty about how you’re spending your money. How much do you spend on clothes or meals out? It’s tough to own up to frivolous spending, but it has to be done to reach your goal of getting into your own home.
Cut variable expenses
Once you know where savings are made from cutting your variable spending, work out the amount you can commit to a savings account.
The average salary in the UK is around £30,000. If you can save £500 a month – annually, you’ve saved £6000, and at this rate, it will take you, with interest added, around eight or nine years to come up with £60,000.
Get a second job
Too long? Of course, it is, so what else can you do to bump up your deposit savings plan? Take on a second job. This action can also work wonders for reducing your socialising as you’ll be working when your friends expect you to be with them.
Move home, or house sit
If moving back home is an option for you, do it, as you’re likely to double your monthly savings and halve the time it will take to secure your entire deposit.
However, if it’s not an option, there is another way, you can house-sit. This is a popular option for holidaymakers and people who don’t own their own homes and don’t want to commit to a rental agreement that is often a fixed-term lease.
With house sitting, there is an agreement, and the house sitter will agree to carry out duties while living on the property.
Homeowners with pets prefer a home sitter to pay for pet accommodation like dog kennels and catteries. Many websites are catering for the matchup of homeowners and house sitters.
As the saying goes: Where there’s a will, there’s a way. Providing your share of the funds is the hardest part of getting on the property ladder. i.e. the deposit, and there are many more ways to add to your deposit, including Government schemes, so do your research and remember ‘opportunity really favours the brave or the bold’.
Are you a first home buyer in the US? Read this blog post on ways to raise cash for a property.