How to save a deposit
The average UK property price at the beginning of 2015 is in the region of £160,000 according to the major indices. The minimum deposit required by a mortgage lender is 5%. That means the very smallest nest-egg a first-time buyer has to save up in order to buy a property is £8,000.
When you are already paying rent and meeting the cost of day-to-day living, saving up thousands of pounds is a huge challenge. Little wonder that more than half of first-time buyers receive some kind of financial assistance from their families.
Whether you have family support or not, it is a fact that the bigger the deposit you can manage to save up, the cheaper the mortgage deals available to you will be. The very lowest rates are offered up to 60% loan-to-value (LTV), meaning you need a 40% deposit.
Realistically very few first-time buyers can avail themselves of these deals, but there will be far more mortgages at lower rates on offer if you can save a 10% deposit than a 5% one.
It makes sense to get saving as early as you can.
One challenge these days is finding the best home for your savings. As the Bank Base Rate has fallen to record levels, so too have the interest rates available on savings accounts, meaning the benefit you receive from them at present is negligible. While it is always important to shop around for any financial product, don’t be too pre-occupied with trying to find the savings account with the best interest rate in the short term, but one that will help your money grow over the long term.
If you don’t have much willpower, you may want to place your savings in a notice account. These do not allow you to access your funds immediately, reducing the chance of you raiding your savings for an impulse buy. Perhaps the best home for your savings in the current climate is an individual savings account (ISA). You can choose between a simple cash ISA or a stocks and shares ISA which is dependant on fluctuations in the stock market. The main advantage of ISAs is the fact that they are tax free whereas other savings accounts are at the mercy of the taxman. If you are still unsure as to the best home for your savings, speak to an independent financial adviser who should be able to find a way to make your money work as hard as possible for you.
With no end date in sight for the current economic slump, it may feel like putting money away is too difficult as you survive on a hand-to-mouth basis. But if you can manage to squirrel away some funds, you could be in a great position to take advantage of house prices that are more affordable than they have been in years.