If you're trying to raise a deposit for that all-important first home, just how are you going about it? You'll hopefully be saving religiously, but it's only by having the right kind of savings vehicle – not to mention the right mindset – that you can be confident about reaching your goal.
- Be ruthless with your everyday spending. Saving up for a deposit can be a challenging task, namely because of the sheer amount of money you'll need to accrue. Even if you're only aiming for a 5% deposit – perhaps you're looking for a first time buyer mortgage, for example – it could still equate to several thousand pounds, so you'll need to be seriously ruthless with your budget. Impulse buys and frivolous spending will have to be a thing of the past, and you'll probably want to cut back on things like clothes, eating out and expensive holidays. Given the stricter affordability rules of the last 18 months, this could be a good habit to get into, anyway.
- Find the right savings account. Of course, once you've started making savings, you'll need the right savings account to put that extra money into. You'll probably want to look away from things like fixed rate accounts, as although they typically pay higher rates, they normally won't let you add funds at a later date, which won't be ideal for those looking to slowly build up a deposit. Instead, easy access accounts could be worth considering, but an even better option could be a notice account – you'll have to give notice before you can access your savings so you won't be able to withdraw the money on a whim, which could be great for those who may be tempted to dip in unnecessarily. Ideally, opt for a cash ISA (either a notice version or easy access) to maximise your tax efficiency and ensure you get to keep more of your hard-earned savings.
- Go alternative. However, given the low returns on offer with many traditional savings accounts – not to mention the fact that rising house prices are making it even harder to build a deposit – a growing number of would-be homeowners are turning to alternative solutions to reach their goal faster. For example, research from peer-to-peer lender Zopa found that almost two-thirds of customers aged 18-40 were using the lending service to raise a deposit, with over half expecting it to reduce the time it'll take to reach their goals (34% of respondents said that this form of investment will shave more than a year off the time until they can buy, and a further 21% said it will reduce their waiting time by six months). This is largely thanks to the higher investment returns offered, but there's more investment risk, too, so it would only be suitable for those comfortable with that.
- Speak to family. Many people turn to their parents for help towards the deposit, and if this kind of financial support from the Bank of Mum and Dad is an option, it could make the whole process far easier. However, they may have to tighten their belts, too, as the Zopa survey also found that 28% of parental contributions in the last year were over £45,000, which just highlights how quickly deposit requirements are increasing.
- Know your goals. One of the best things you can do is have a clear goal in mind, and that means you need to know the market. Hopefully you'll have an idea of the kind of house you're after, so start looking for it – use property searches and estate agent sites to see what house prices are like for the location and property type you're after, and then you can get a rough idea of the size of deposit you'll need. Start researching mortgage rates, too, as that way you'll have a long-term understanding of your financial commitments and can start planning accordingly.
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