More than half (57%) of those renting feel that getting on the property ladder is out of their reach, with saving for a deposit one of the biggest challenges.
Couples renting in London, where property prices are highest, will need an average of 22 years and two months to save for a deposit, according to recent research by comparison site MoneySuperMarket.
How much of a deposit do you need to save?
The problem isn’t just confined to the capital. First-time buyers in many regions of the country often need to save tens of thousands of pounds if they want to put down a 5% deposit – the minimum deposit amount required to secure a mortgage. So what’s the best way to save for a mortgage?
How to boost the amount you save for a deposit.
Make the most of government schemes
There are various savings accounts available which are designed to help first-time buyers save a deposit for a house more quickly.
- Help to Buy ISAs
The government will top up any contributions made into a Help to Buy ISA by 25%. You can pay in up to £200 a month, except for the first month you open the account, when you can pay in up to £1,200. The maximum government bonus you can receive is £3,000 and you can use money saved in a Help to Buy ISA to buy a property up to the value of £250,000, or £450,000 if you’re buying in London. You must be aged 16 or over to open a Help to Buy ISA.
You’ll need to get your skates on though if you want to apply for a Help to Buy ISA, as the accounts will close to new applicants on 30th November this year, and you can open an account with as little as £1. Once you’ve opened an account, you can continue to pay into it until 30th November 2029 but you must claim any bonus by 1st December 2030.
- Lifetime ISAs
Another option is the Lifetime ISA, where again the government will boost any contributions you make by 25%. You can pay in up to £4,000 each tax year into a Lifetime ISA from the age of 18 up to 50, and the maximum bonus the government will pay is £32,000. You can either use your Lifetime ISA to save for a property deposit, or you can save for retirement, or both. Money held in your Lifetime ISA can be used to buy a property costing up to £450,000. You must be over 18 but under 40 to open a Lifetime ISA.
You can save into both a Help to Buy ISA and a Lifetime ISA if you want to, but you’ll only be able to use the bonus from one to buy your first home.
- Help to Buy equity loan scheme
There’s also the Help to Buy equity loan scheme for buyers with small deposits. This is available to those purchasing new-build properties costing up to £600,000. Buyers must put down a 5% deposit, and the government will then lend them a further 20% of the property price interest-free for the first five years, rising to 40% for those buying in the capital.
Family support
Having help from the Bank of Mum and Dad can help to speed up the process of getting onto the property ladder.
Several lenders offer mortgages which are specifically designed to factor in financial support from parents, including deals which allow buyers to take out a mortgage without a deposit. In return, parents must agree to keep a percentage of the property price in a savings account. Some lenders also allow parents to borrow against equity in their own home, and these funds can then be given to their children to be used as a deposit.
Whichever method you opt for will need discipline in order to save towards your first home. The financial support is available as detailed above but without setting yourself a plan and an ultimate goal it’s easy to fail. Therefore the need for regular reviews and ongoing financial advice is often the key to successfully getting yourself onto the housing ladder.
Content correct at time of writing and is intended for general information only and should not be construed as advice.