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Saving to get a toehold on the first rung of the housing ladder can seem an impossible task, given the climate of rock-bottom interest rates and sky-high property prices.
First-time buyers need to put down tens of thousands of pounds as a deposit, yet salaries have failed to rise alongside soaring house prices over recent decades.
According to latest figures from Nationwide Building Society, the average house price is £204,947 in the UK, requiring a deposit of £20,495 based on a 90% loan-to-value mortgage.
However, there are ways to boost the sum you save, with a little planning. Here are five tips to help boost your chances of getting onto the housing ladder.
Slash your spending
With a little patience small savings add up over time, so work out where you’re able to cut costs.
Giving up that daily takeaway coffee addiction could save you over £650 a year 1. Do you have gym membership? This can dramatically eat into your salary over time, so consider changing to a council gym. Cutting out small luxuries could see you save a fair share of your monthly income.
A quick scan of your bank statements should reveal where you can cuts. Make a list of all the bills you pay, and see if any can be reduced – by, for example, switching to cheaper utility providers.
Cutting costs may also help you avoid sinking into the red, keeping a good credit record intact for when the time comes to take out a mortgage.
Tougher mortgage affordability tests introduced in April 2014 include lenders scrutinising regular spending habits, so streamlining your monthly spending is worthwhile anyway.
Get a regular savings habit
Save as much as you can, as soon as possible. If you’ve found a way to save some cash, set up a standing order to save automatically into an account of your choice. These are simple to arrange, and mean you don’t have to think about making savings each month.
Banks’ regular savings accounts offer some of the most attractive rates, with some as high as 6%. However you will often need to have a current account with the provider before you apply, and there will be limits on how much you can save each month. Alternatively, you can set up a regular direct debit to another savings account of your choice.
Compare accounts on the market
Avoid simply opting for a savings account from your bank or building society. There is a wide range of accounts on offer from a variety of providers, and some of the best payers aren’t well known on the savings market.
Check out comparison sites such as moneyfacts.co.uk and defaqto.com. Once you’ve chosen an account, check that your cash will be covered by the Financial Services Compensation scheme at fscs.org.uk/protected.
Beware that many of the best-buy accounts will pay a ‘bonus rate’. This typically applies for a year, and once this ends the rate may sink dramatically. Make a note in your diary of when the bonus expires, so you can move your money if necessary.
You may want to consider a new government-funded scheme. In April 2017 the Lifetime Isa will be launched, designed to encourage people to save for a house.
Savers aged between 18 and 40 will get £1 from the Government for each £4 they put into the ISA before they turn 50. A maximum annual allowance of £4,000 will be topped up to £5,000 – savers could bag an extra £32,000 in total.
Consider your timeframe
If you’re planning on buying over the short-term – say, within the next year – then you’ll need easy access to your cash. This will limit the available options, which are the most flexible as they allow you to get your hands on your cash whenever needed.
However, interest rates are likely to be the lowest on offer on easy access savings accounts. Also check the conditions, as even if the account claims to be easy access, some limit the number of withdrawals you can make each year.
Most wannabe first-time buyers will need to save for longer to build up a big enough deposit. On the positive side, this gives a wider choice on where to save. You can pick from a wide range, including cash Isas, fixed-rate bonds, and current accounts. However, fixed-rate accounts may charge steep penalties for withdrawals before the term is up, so check details carefully.
Some current accounts pay the best rates on the market, and you can access your cash whenever you like. However, the higher rate will typically apply to a reasonably low limit of, say, the first £20,000 – but can give you a starting block for making savings.
Many tax-free Isas that were recommended a few years ago pay dismal rates of around 0.1%, so if you are in one, shift your cash. Don’t assume that tax-free interest outweighs low returns.
Review your plans regularly
The UK is entering an uncertain period as Brexit plans are negotiated. Set aside some time every six months to check property prices, as if the economy suffers over the coming years these could start to slide. Or you may find that as a buyer you have more bargaining power.
Be flexible in your approach, and consider areas that aren’t perhaps in your ideal location. You may have to cultivate patience, but and accept it’ll take year to reach your goal. A suitable home may crop up that’s within your grasp earlier than expected if the housing market starts to adjust in line with affordability.
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Money Means is a news and information series written by independent financial and consumer journalists and experts. FSCS launched Money Means in 2016 to help give people clear and useful information about personal finance, to increase their understanding and confidence when dealing with money.