One of the most frequently given pieces of advice to prospective home owners is to have a large deposit saved up. This can be exasperating for young people to hear, as they battle with the rising cost of living and stagnating wages.
The average first time home buyer deposit in the UK is £53,935, according to Statista, a sum which would take many young people several years to save up. As the cost of renting is soaring too, the prospect of home ownership can seem like an ever more distant dream. This is even more true for people on a low income. Here are a few tips.
The first step is to figure out your target number. Start by deciding in which area you want to live, and what type of property you want. Many first time home buyers start off with a flat or a terraced house, as these tend to be more affordable.
House prices vary greatly depending on the location, so if you compromise by living in a cheaper area this is definitely going to help you get on the property ladder sooner. View your first home as a stepping stone, rather than try to tick off every box on your wishlist. Work out non-negotiable points, such as within commuting distance of your place of work.
The next step is to look on portals such as Rightmove to see what the average market rate is for the area and type of property that you want. You will probably need a deposit of between 5% and 20% of the total purchase price. Remember that the more deposit you can put down, the lower your monthly repayments will be.
There are plenty of mortgage calculators online which tell you how much you can borrow, although these can vary. Generally, a high street lender will have a cap of 4.5 times your annual salary. If you are combining your salary with a partner, the cap may be set lower.
Now you should know how much you need to save up, based on what you can afford to borrow and what the average house prices are in the area in which you want to live. The next step is to put a regular savings plan in place. If you tell yourself that you will set aside money when you can afford to do so, you are unlikely to make much progress.
Work out your monthly income and outgoings. A good rule to follow is dividing your income into essential living expenses, savings, and the extra ‘nice to have’ stuff, such as eating out, digital TV subscriptions, fashionable clothes, holidays, and so on. If you are spending 50% on essentials, 30% on extras, and 20% of your income on savings, this is a good balance.
If you have debts or loans, it is best to clear these as soon as possible, because in the long run, the interest will stack up and you will end up paying more.
Rent is usually the biggest monthly outgoing payment by far, particularly at the moment when in some areas rents are soaring. If you are a single person renting a flat or a house, consider if you can move into a shared house or smaller bedsit. Some people may have the option of moving in with family members until they have sufficient deposit saved up.
In these days of instant online shopping choices, impulse buying is easier to do than ever. If you are someone who enjoys browsing shopping sites online, sticking to the 24-hour rule can be a useful way to limit your unnecessary spending. This involves leaving your purchases in the online shopping cart before going through with the transaction.
This acts as a cooling off period to make sure that you really want the item, and if your particular choice represents the best value for money. You might be surprised at how much cash you have been frittering away on stuff you don’t really need.
The Lifetime ISA is available for people aged between 18 and 40 who want to save for a deposit, or build up a nest egg for later life. You can pay in up to £4,000 per year, and the government will top up whatever you pay in by 25% per year.
If you would like to speak to a bad credit mortgage broker in the UK, please get in touch with us today.
Your home may be repossessed if you do not keep up with your mortgage repayments.
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