Becoming a homeowner is a lifelong goal and a huge achievement for many people and is often the single largest purchase that anyone will make in their lifetime. But buying a home is sadly not as simple as it was 20 years ago, house prices have risen dramatically and yet wages have not, therefore many people are now finding themselves forced to stay at the bottom of the property ladder.
One of the hardest hurdles to jump over when getting on the property ladder is that of saving for the deposit. A house deposit is usually at least 5% of the property value, with some mortgage providers requiring closer to 10%. Even at 5%, the deposit payment on a £150,000 apartment would be £7,500 and for people looking to purchase property in London where the average house price is £634,000, this would mean having to save up a staggering £31,700, before being able to start the mortgage process.
With most people barely making ends meet as it is, living paycheck to paycheck, the prospect of saving up even the lowest amount for a deposit can seem nearly impossible. So how can they do it?
Look at your finances
Learning the state of your financial situation is an important first step to deciding to save up for a property. Do you actually know how much you spend a month and on what things? Many people live with their head in the sand when it comes to money, quite often out of fear at facing a hard truth. Sit down and take a cold, hard look at your income and expenditure. Write it all down, warts and all. What is your income and where does it go? Do you have anything left to save or will you need to make cutbacks? Do you have any outstanding debt that needs to be tackled first? Create a budget for yourself highlighting your expenditure for the past three months, this will help you with step 2.
Look for areas that you can make cutbacks on
Regardless as to whether you currently live paycheck to paycheck with no savings or you have enough expendable income to put a little aside each month, you can still reach your savings goal more quickly if you make a few cutbacks. Looking at your budget is there anything that stands out? Do you spend a lot on takeout each week? A £25 takeaway once a week amounts to £1300 over the course of a year. Do you have an expensive phone plan that you don’t need? Cutting a £30 phone bill in half can save you £780 in the course of a year. Could you live without Netflix, Amazon Prime and Spotify? Although we get used to having these services available to us there was a time when we lived without them and cancelling your subscription could help you save hundreds over the course of a year.
Remove the biggest expense of all – rent
Rent is often the single biggest expense that an individual will have to pay each month and in some cases accounts for upwards of half of their monthly salary. In addition to rent the payment of bills can quickly lap up a lot of what is left, making it very difficult for a person to put aside any savings at all. Many people choose to move back in with their parents or a family member when saving for a house deposit as this can help them to save a huge amount of money in a short amount of time, saving £600 a month on rent across 12 months can see you save £7200 in the space of a year. Understandably, not everyone can rely on their family to give them free accommodation and for some people moving back in with parents isn’t going to be an option and they may need to look at cutting back on the money they spend on rent in different ways, such as moving into cheaper shared accommodation or trying to cut back on what they spend on bills.
Get financial help
If you’ve made as many cutbacks as you are able too and it still seems physically impossible for you to make the minimum deposit amount before you turn old and grey, then you may want to consider getting financial help by either asking your family if they will offer you a loan for your down payment or trying to take out a loan with a loan company. Many first-time buyers have less than ideal credit histories and so a family loan is always your best bet to save on interest rates and increase your chance of acceptance. If your family are not in a position to help you with a loan then don’t despair you can also find poor credit loans at New Horizons. Taking out a loan is a big financial commitment not to mention you will be taking out an even bigger loan in the form of your mortgage, remember to only use money lending as a last resort and to do your research on interest rates and the consequences of missed payments.
Share ownership
If the time is right and both you and your partner are looking to get on the property ladder then you may be able to do so more quickly by halving your deposit and having shared ownership of your first home together. Many first time buyers choose to share ownership of their first properties to help lessen the strain of saving for their deposit and making the mortgage repayments that follow. If you don’t have a partner to move in with then there are still other shared ownership options available whereby you will own between 25-75% of the property with the option to buy a bigger share at a later date. Each country runs its own shared ownership schemes slightly differently so be sure to check the rules and regulations for where you live before deciding if this is the option you wish to take.
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