Saving for your first house, here in the UK at least, can often seem like a monumental and impossible task. With the UK housing market becoming more and more difficult to get into, a staggering 62% of under 35s receive help from “The Bank of Mum and Dad” to help them get on the property ladder!
The most frustrating part of saving to buy a home is the fact that if you were not renting, you could easily afford the mortgage repayments. The mortgage repayments are generally much less than what you might currently pay in rent but the deposits needed to buy your first house, are just out of reach. This is because a reasonable amount of your income is spent on rent. Not only is saving a deposit a huge obstacle but rising house prices mean that first time buyers, like yourselves, are often left feeling helpless and left behind.
So what realistic options are there to help you save for your first house? We are going to explore some of the tactics and products to do just that, without relying on “The Bank of Mum and Dad”. N.B. We are not going to advocate you stop eating avocado on toast like certain baby boomers! (It’s not like they had 100%+ mortgages or anything back when they were buying!)
This tip is the most important one! Too many people save in the following way:
Get paid >>>> Pay rent >>>> Pay bills >>>> Go through the month >>>> Save what is left
If you follow this methodology you will struggle to save anything because you adjust your spending as your income changes. This means that we have the amazing ability to always end up with roughly £0 at the end of the month, regardless of what income we have. Instead, try saving a reasonable amount at the beginning of the month.
Get paid >>>> Pay rent >>>> Save a manageable amount >>>> Pay bills >>>> Go through the month
Once you have worked out a reasonable amount to set aside each month then you know how much you have got left to spend until the next payday. Putting money away to save at the beginning of the month means it’s a lot easier to save for that deposit.
I am not going to say much about Help-to- Buy (H2B) it is the first product many people will look at when starting out on buying their first house. We won’t discuss if it’s a good governmental policy or not, but you should be aware of a few things.
1. You can invest up to £1200 when you first open a Help-To- Buy ISA.
2. You can only save up to £200 a month after this.
3. You only get the 25% bonus AFTER you complete on your first house so don’t expect to put the bonus towards the actual deposit. You can however use it for some furniture or anything else you need for your new home.
As you can see there are a few caveats of H2B ISA’s and you are rather limited if you are able to save more than £200 per month. Which leads us onto a product you may be less familiar with but could really help boost your savings if you have more than £200 to put away.
This is an area that we operate in! Property Crowdfunding to be more precise. If you have put money into a H2B ISA and a savings account, but are able to save more, then we have the product to help you.
We allow you to invest in property using a regular direct debit from as little as £20 with no upper limit on what you can save. You do this by purchasing shares in the house of your choice. Our properties earn you interest in the form of monthly rental income which is over 6% annually depending on the property you choose. This is a great rate but the real advantage comes from owning a share in the house! You are able to gain from rising property prices too. Your investment is linked to the value of the house.
You must also note that house prices can fall and therefore your capital is at risk. Property Crowdfunding is also a more illiquid investment than a current or savings account. This means that you can’t access your money immediately and withdraw it. That being said we aim to help people sell their shares in less than three weeks but this is not guaranteed.
The next best thing is a savings account. There are a couple of banks offering good rates but, generally, there are various limits onto what can be saved. Also, savings accounts tend to only pay interest on balances up to a low threshold.
Due to the low thresholds, we think that savings accounts can be useful if you have some money that you want to earn interest on but where you need access to that money quicker.
Lastly there are a raft of new FinTech startups that are designed to help you save and become more financially secure. Cleo, Plum and Monzo to name a few.
They work by tracking all your spending and interfacing with an app, or even simple text messages, to help you understand where you may be spending more money than you should! This is great for those who haven’t quite yet mastered organising their finances just yet and could help you maximise the money you have available to put into the various products mentioned above.
With a wealth of products and services there is plenty of help to get you started saving for your first deposit - Which is a great thing considering how much of a monumental task it is. It's not easy and won't happen overnight but the sooner you begin the sooner you will get there.