The first-time buyer's guide to saving for a deposit
The Help to Buy scheme offers both first-time buyers and existing homeowners the opportunity to purchase a new-build property up to the value of £600,000 with the help of a government equity loan. It's a prime opportunity for those struggling to raise a mortgage deposit, since the 5% deposit required offers a more affordable solution for purchasers.
Help to Buy allows buyers to pay 80% of the full purchase price upfront, which includes a 5% deposit along with a 75% mortgage (giving buyers access to competitive lending rates). The equity loan from the Government can then comprise up to 20% of the property's value.
This scheme requires the potential buyer to take out a mortgage from a qualifying lender, which together with the deposit, must total 80% of the full purchase price. The equity loan which is on offer from the government until 31 March 2016, can then comprise up to 20% of the property's value.
Saving for a deposit takes a certain amount of willpower and know-how. We've put together our ten top tips to get you on course for saving for a deposit and ultimately, climbing that property ladder.
Help to Buy - How does it work?
10 top tips when saving for a deposit
1. Move in with friends or family: Whilst we all love the freedom of our own place, renting may not be the ideal solution when it come to saving money. A report from Shelter, the housing and homelessness charity, revealed that on average the cost of renting a property is rising by £300 a year, leaving many trapped in a rental cycle. The findings also revealed that 72% of those renting a property can only save £50 a month or less. Could you move in with friends and family instead? Alternatively, opt for a house share or a rental property where many of the bills are already included.
2. Research the best savings account: Ask any financial expert and they're bound to tell you that before you can save, you need to clear major debts, such as outstanding credit card bill. Your next priority should be to research the best savings account. Opening a cash ISA could be a serious consideration, since the interest accrued is tax free. Remember that for the 2013/2014 tax year, you can put away up to £5,760 into a cash ISA.
3. Create a budget spreadsheet: The best way to manage your money and stick to a budget is to create a spreadsheet or utilise free budgeting tools. By comparing your monthly outgoings against your monthly income, you will be able to retain a realistic budget which can be updated regularly.
4. Set up monthly savings:Setting up a standing order to your savings account is an effective way to ensure that a proportion of your earnings each month will be saved and not spent elsewhere.
5. Be stringent with shopping: If a shopping list sounds outdated to you, there are numerous phone apps available so that you can stay focused and only buy those items that you actually need. Plus there are many other money-saving apps.
6. Sell your clutter: Without realising it, you might have hundreds of pounds worth of goods, or as you might view it, clutter stored away in wardrobes, drawers and even the attic. Why not join forces with a few friends and head off to a local car boot? Or if this sounds too bothersome, you can sell your unwanted goods on auction websites such as eBay.
7. Cut your spending: At the end of each month look back at your expenses and try to be critical of where you have spent unnecessarily or in some cases over-spent. You need to be realistic about your expenditure and trim down where possible. You'll be surprised at how easy this can be. Buying cheaper alternatives such as own label could be a good place to start.
8. Go online for the best deals: Whilst putting all these tips into practice it's important to remember to treat yourself occasionally too. There are a host of websites such as VoucherCodes.co.uk or Groupon featuring some fantastic deals and discounts, with some super savings for food, travel, entertainment, shopping (the list is endless). An ideal way to reward yourself minus the guilt.
9. Create a second income: To help speed up the saving process, you could create a second income, which could be in the form of a part-time job on the side. Alternatively, you could turn one of your pastimes into a money-making venture. Whether you have skills in proof-reading, photography, IT, jewellery-making, baking and so on, chances are there is money to be made. You can also earn cash by signing yourself up to be a mystery shopper, a TV/film extra or, if you have the flexibility, consider pet or house sitting.
10. Reclaim lost cash: Your old bank or building society accounts, Premium Bonds and investments could all be home to unclaimed cash, but the good news is that you should still be able to reclaim it. Try sites such as www.mylostaccount.org.uk or www.unclaimedassets.co.uk/
As with any savings plan, it's important not to get discouraged, but by making some small adjustments and sticking to your budget, you could be well on your way to accumulating a 5% deposit.
*Source - House Price Index released by the Office for National Statistics