We know it’s going to take more than giving up gym memberships and Netflix subscriptions to save for your first home. House prices are at an all time high with the average house in the UK costing £273,762.1 In London, that figure is almost double at £510,102.2 Add to that the fact that the affordability gap is growing rapidly, with house prices increasing by 14% in 2021 and average earnings dropping by nearly 1%,3 there’s no denying that the process of buying your first home is a difficult one.
But despite ever-surging house prices, buyers remain undeterred. In fact, the number of UK first-time buyers has hit its highest level since 2002!4
At Moneybox, we want to make it as easy as possible for you to buy your first home and that starts with saving up for the deposit. Seems simple enough, but how much should you actually be saving? Use these simple steps to work it out…
Step 1: Work out how much your deposit might be
It’s hard to know how much you’ll need to save when you don’t have a property in mind, so it’s a good idea to look at the average house price for the area you’d most likely look to buy.
Lenders offer mortgages with deposits anywhere between 5-20% of the property price. Let’s say you were to buy a property for £300,000, here’s how much the different deposit sizes work out:
5% = £15,000
10% = £30,000
20% = £60,000
Step 2: Use the Moneybox House Deposit Calculator to figure out how much you need to put away each month
Now that you have an idea of how much you might need for a house deposit, you can use our House Deposit Calculator to work out how much you need to save each week.
Simply enter how much you’re trying to save and when you want to have saved it by and the calculator will figure out how much you should be putting away each week. Plus, you’ll see how much interest you’ll earn on your contributions, as well as how much your 25% government bonus will be by saving into a Lifetime ISA.
Step 3: Save into a Lifetime ISA and get £1,000 each tax year for free!
The Lifetime ISA (LISA) is a great way to save for your first home. You can save up to £4,000 per tax year towards your first home and earn a 25% government bonus on all contributions. That’s up to £1,000 each tax year you save, absolutely free! You can choose to save into a Cash Lifetime ISA or invest into a Stocks and Shares Lifetime ISA.
Let’s say you were aiming to save £15,000 in three years, you’d only need to save £12,000 of your own money into a Lifetime ISA and would receive £3,000 completely free! (And that’s not even including any interest or gains earned).
A 25% government penalty applies if you withdraw money from a Lifetime ISA for any reason other than buying your first home (up to £450,000) or for retirement. This means you´ll get back less than you´ve put in. Your account also needs to be open for 12 months before you can withdraw penalty-free for a house purchase. It counts as ‘open’ once you’ve made your first contribution.
All investing should be regarded as longer term and you should plan to invest for at least 5 years. The value of your investments can go up and down, and you may get back less than you invest.