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A Guide to Managing your Money: Saving for a First Home

Buying your first house is one of the biggest achievements in many people’s lives. It represents a step towards independence and financial security. Unfortunately, getting on the property ladder is not as easy as it used to be, in part due to wages and house prices increasing at different rates, and as a result of a lack of affordable housing. The current average age of the first time buyer in the UK is 34, which shows just how different the housing market is now, compared to that of our grandparents’ era, who bought their first home in their early twenties.

As the demand for housing has increased, so have property prices. In the 10 years between 2009 and 2019, the average house price in London increased from £222,107 to £453,385. As a result, instead of needing £22,000 to meet the standard 10% deposit requirement, you now need over £45,000. So, how can you save to buy your first house? Mostly, it’s going to take a lot of commitment, but there are things you can do to increase the rate at which you save your house deposit and there are a few things you can prepare for in advance, so you’re not caught out by additional processing fees.

Preparational tips when buying a house

Avoid unnecessary credit

While you probably won’t be declined if you use your credit card occasionally, using credit excessively or having several hard searches on your credit file could deter mortgage lenders from accepting your application. In the years running up to your first house purchase, avoid instant payday loans if you can, and try to repay as much of your debt as possible. The records on your credit file remain for 6 years so it’s important you strive to repay any existing debt as soon as possible. It’s also worth bearing in mind that car finance can also go against your mortgage application. If you currently have car finance and are looking to apply for a mortgage in the near future, make sure you meet all of your repayment deadlines and try to settle it before you apply if possible.

Do your research

It’s unlikely that you’ll head into house buying discussions before doing a little research, but the more information you accumulate about the process – both saving and purchasing – the better equipped you’ll be to deal with potential scenarios that occur when buying a house. You don’t need to be a know-it-all but try to gather a basic understanding of the process and the additional fees required. Unfortunately, you don’t just need a deposit and a mortgage to buy a house. You’ll also need to consider stamp duty, solicitor and surveyors fees and potential moving costs. Plus, as first time buyers, you will probably need a budget for things like a kitchen, a sofa and a bed.

Find out your budget

This will form part of your research, but a good place to start when formulating the kind of deposit you need is playing around on mortgage calculators. Most banks will have one which tells you what you could potentially borrow based on your salary and your deposit. You can then adjust the figures to see what your options might be. This doesn’t involve a credit search and can help you understand how much you actually need to save. You might also find out that by increasing your deposit from 10% to 15%, for example, you could increase the amount you are able to borrow.

How much should you save towards a house?

Understandably, the answer to this question will depend on the kind of property you are looking to buy and which region in the country you are hoping to live. In the southeast, £200,000 might buy you a nice 1-2 bedroom flat, whereas in the northeast, this could land you a 3 bedroom detached property with a garden.

Once you know roughly where you want to live (and we would suggest somewhere within commutable distance to your work, unless you intend to change jobs soon), a simple search on property websites can help you determine the rough price of a house in that area.

You’ll need to aim for at least 10% of the price of the property for your deposit, but you’ll probably get a better mortgage deal if you have over 15% saved. Some mortgage lenders won’t consider first time buyers if they have less than a 15% deposit. Then, you will need to consider:

You may need to think about furniture as well as it’s unlikely your new home will come fully furnished. If you’re working with a tight budget or you stretch yourself with your house deposit, you can often find fridges, tables or even wardrobes given away for free if you’re able to collect. It might not be glamourous, but it’s one less thing to worry about in the immediate period after securing your home.

Tips to help you save for your house deposit

Create a financial plan

If you really want to buy your own home, you may need to make some changes to your current financial habits. Draft a budget of your income and your essential expenditure – this includes your current rent, utilities bills, phone tariff and food etc. The remaining funds are your disposable income, and you should aim to save a large chunk of this towards your house deposit. You don’t need to give up life’s little luxuries altogether, but every penny counts when you need to save thousands of pounds. Once you know how much you can save each month, workout how long it will take you to save the full deposit amount. At £500 per month, you could save a £20,000 deposit in just over 3 years.

Research help to buy schemes

If you have already opened a Help to Buy ISA, maximise the benefit by saving the full amount into it each year. The bonus will help towards your house costs. If you haven’t got a Help to Buy ISA, you might want to consider a Lifetime ISA which adds up to £1,000 in bonus payments if you save the maximum £4,000 each tax year. These ISAs often charge a fee if you withdraw the funds early so only save what you can comfortably afford into these accounts.

Consider using bonuses/commission/birthday money

This is a good way to quickly increase your house deposit or save for the additional fees when buying a house. If you earn a yearly bonus or monthly commission, consider putting these funds straight into a savings account. You will soon get used to living without the extra cash and it will become a habit to save this money. Gifted money from friends or family is also a good way to add to your savings – of course, you should treat yourself if you want to! But otherwise, even a few hundred pounds can cover the costs of your surveyor’s fee, for example.

Buying a house is no easy feat and there is no shame in taking your time to do it. Once you have a house, you’ll have mortgage repayments to keep up with, so if you want to go travelling or enjoy your life a little more first then no one will blame you for doing so. What’s important to remember is that any property you own is a financial asset and your mortgage repayments increase your equity holding in that property. If you start with a £20,000 deposit, then after a couple of years you’ll likely double that amount. It means you can potentially buy a bigger house, or even re-mortgage to renovate the current house you’re in.

Being a first time buyer is not without its challenges, but you are also in a good position as mortgage lenders are keen to get you on board and you are a chain-free buyer which means the process for the seller is quicker (and usually less stressful). Take the time you need to save and don’t rush the house hunting. While an impressive achievement, mortgages are almost life-long commitments, and you don’t want to spend the rest of your life worrying about meeting your repayments.

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