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Buying your first home?

Planning & protection

30 January 2023


Stuart Hardman

A couple moving into their new home

Independent financial adviser, Stuart Hardman, shares how to build a deposit and boost your savings as a first-time buyer.

There’s no denying that first-time buyers face huge challenges at the moment. Prices are currently at record levels, which means the amount of deposit you need to purchase is the highest it’s been, proportionate to income, for any generation. Mortgages are getting tougher to apply for too, owing to stricter lending criteria.

Getting onto the property ladder can seem a pretty daunting task. The average UK house price was £292,000 in July 2022, which is £39,000 higher than the same time last year[1]. The data shows the average house prices increased over the year in England to £312,000 (16.4%), in Wales to £220,000 (17.6%), in Scotland to £193,000 (9.9%) and in Northern Ireland to £169,000 (9.6%).


More mortgage options you’ll have to choose from

The house price data for July 2022 shows that average house prices in the UK increased by 15.5% in the year to July 2022, up from 7.8% in the year to June 2022. This jump in annual inflation was mainly because of a base effect from the falls in prices seen this time last year, as a result of changes in the stamp duty holiday.

All this means the bigger the deposit you are able to put down, the more mortgage options you’ll have to choose from. So the longer you have to build up a deposit fund, the more feasible moving into your first home it is.


Be realistic about what you can afford to put away

There are a few things to consider when thinking about the best ways to save for a deposit. The first is how much you can realistically save each month. This will depend on your income and outgoings, but it’s important to be realistic about what you can afford to put away.

Once you have an idea of your monthly savings potential, you need to consider the different options available for saving. One option is to open a savings account specifically for your deposit fund. This has the advantage of keeping your money separate from your everyday spending money, helping you to stay disciplined with your savings goal.


Investing your money into a longer-term investment

Another option is to invest your money into a longer-term investment such as an Individual Savings Account (ISA). The main benefit of an ISA is you can save or invest money without paying Income Tax on any earned interest, or Capital Gains Tax.

In the current 2022/23 tax year, you can save up to £20,000 into an ISA.


Lifetime ISAs

Lifetime ISAs are designed to help you save for your first home, or for later life. You can hold both cash and investments within them. They’re available for people aged under 40 and you can save up to £4,000 a year, up until the age of 50.

The government will top up your savings, adding 25% up to a maximum of £1,000 each year. You’ll pay a 25% charge to withdraw from this type of ISA unless you use it to buy your first home, or you’re aged 60 or over (or if you are terminally ill, with less than 12 months to live).

You don’t have to declare interest earned or capital gains on savings or investments up to that amount on your tax return, so Lifetime ISAs are very tax-efficient. But keep in mind, these rules may be subject to change in the future.

To find out more about Lifetime ISAs visit: https://www.gov.uk/lifetime-isa


Important source of funding for many first-time buyers

Whatever option or options you choose, it’s important to have a plan and stick to it. Saving for a property deposit can take time, but if you’re disciplined and consistent with your savings, you’ll get there eventually.

We hear a lot these days about the Bank of Mum and Dad. In recent years, it has become an increasingly important source of funding for many first-time buyers. Among the most recent buyers (2020 onwards), 24% say they had help with their deposit from family, including 6% who had the entire deposit paid for them, and 16% whose family contributed to it [2].


Availability of mortgage lending has become tighter

Data shows that the number of those getting family help has doubled since the turn of the millennium. Many parents and grandparents feel they would rather pass on money they can spare as a lifetime gift when their children need it most, rather than leaving it to them as an inheritance, possibly decades down the line.

There are a number of reasons why the Bank of Mum and Dad has become more important in recent years. One reason is that house prices have risen faster than wages, making it harder for young people to save up enough money to buy a home. Another reason is that the availability of mortgage lending has become tighter since the financial crisis, meaning that it can be harder for young people to get a mortgage without help from family or friends.


Parental and grandparental help these days is key

The Bank of Mum and Dad can be a great way for young people to get on the property ladder, but it’s important to remember that any money given or lent should be considered as an investment, rather than a gift. It’s also important to make sure that all the financial arrangements are made formally and legally, to avoid any problems further down the line.

But it can be a big ask, especially for parents of larger families who want to be even-handed but are worried they won’t be able to afford to make the same provision for each of their children. The reality is that for many first-time buyers parental and grandparental help these days is key and may be needed simply to achieve the minimum 5% deposit needed for a first-time buyer mortgage.


Thinking about buying your first property?

Getting on the property ladder for the first time can be challenging. To discuss the first-time buyer mortgage deals that could help you get the keys to your new home, get in touch with a Fairstone adviser today.

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[1] https://www.ons.gov.uk/economy/inflationandpriceindices/bulletins/housepriceindex/july2022

[2] https://yougov.co.uk/topics/economy/articles-reports/2022/05/09/how-many-people-parents-help-first-home-deposit

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