The launch of the “Your First Home” initiative on Saturday marks a significant step towards assisting first-time homebuyers in England by making it easier to enter the property market with lower deposit requirements.
Currently, prospective homeowners face the challenge of coming up with approximately £16,850. This figure includes a 5% deposit on the average UK house price, which stands at £272,000, alongside additional costs for moving and legal fees, as per data from Moneyfacts.
Effective Saving Strategies
Savings expert Anna Bowes from The Private Office recommends treating savings like a recurrent bill. By depositing an affordable sum into a savings account soon after payday, individuals can steadily build up their deposit fund. The choice of account depends on personal circumstances, including whether one can lock money away for longer to enjoy better interest rates.
Utilising Government Bonuses
One method to enhance savings is through a Lifetime Individual Savings Account (LISA), where up to £4,000 can be saved annually, and the government contributes a 25% bonus. Consequently, individuals could receive an additional £1,000 yearly if they maximise their contributions. However, funds from a LISA can only be used for purchasing a first home valued under £450,000, a limit unchanged since 2017, or be withdrawn after the age of 60 or due to terminal illness. Other withdrawals incur penalties.
A new First Time Buyer ISA is set to replace the LISA, but details of this scheme are yet to be disclosed by the government.
The Power of Starting Early
The earlier one starts saving, the more potential for financial growth through compound interest. Bowes illustrates that setting aside £50 monthly from age 20 could yield around £41,000 by age 50, given an average annual interest rate of 5%. In contrast, starting a decade later would necessitate saving more than double to achieve the same amount by age 50. Exploring investments in stocks and shares is another option, albeit with inherent risks.
Options for Minimal Savings
Some lenders now offer mortgages requiring minimal or no deposits, as David Hollingworth from L&C highlights. Loans can allow buyers to borrow up to 98% or 99% of a property’s value with initial deposits beginning at £5,000. Eligibility criteria and the appropriateness of these options vary, and not all borrowers will qualify. Additionally, some first-time buyers receive assistance from their parents. Research from Nationwide Building Society indicates that over half of parents who charge their adult children rent allocate part of these funds to help them save for a home purchase.
Reporting based on coverage first published by bbc.co.uk.