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First-time buyers – how to save for your first home

We look at why saving for your first home might not be as hard as you think and give some top tips to help save for a deposit.

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

You’ve probably seen the tweets and the Facebook posts – “25 and just bought my first house!” There’s normally a picture of keys dangling in front of a modern finish kitchen or an apartment door.

You think, “Wow that’s amazing! But I’ve got no chance”.

Buying your first home is a daunting goal and in today’s property environment, getting there can feel impossible. Especially when:

  • the average cost of a first-time buyer home in the UK is £220,000
  • the average deposit put down by first-time buyers in the UK is 22% (which translates to £48,400 on a property costing £220,000)

Of course, this depends on where you want to live, the type of property you want and the income required by your mortgage lenders.

Here are some top tips for saving for a house deposit.

This article isn’t personal advice. Tax rules can change and the benefits depend on your personal circumstances. If you’re not sure what the best course of action is for your circumstances, please ask for advice.

Using a Lifetime ISA to save for a house deposit

Lifetime ISAs (LISAs) can be a good option for first-time buyers. For every £4 you put in, the government adds another £1. And there’s no UK tax to pay on any income or capital gains.

You have to open your LISA before your 40th birthday. But you can keep adding money until you reach the age of 50.

You can put up to £4,000 into your LISA each tax year. With the added government bonus, you could have up to £5,000 saved each year – so there’s potential to build up your deposit quite quickly.

You can withdraw money tax-free from your LISA when you buy your first home. This is as long as your house isn’t worth more than £450,000 and you plan on living there yourself. It must also be bought with a loan taken as a charge over the property (e.g. a mortgage).

You can also withdraw funds tax-free after you turn 60 years old. Any other withdrawals will normally face a withdrawal charge of 25% (20% if the withdrawal is made between 6 March 2020 and 5 April 2021).

If you’re looking to buy a house within the next 5 years, it might be best to hold your LISA in cash. If you’re looking to buy a house in a time horizon that is past 5 years, investing what you put into a LISA could be an option. You can do this with the HL Lifetime ISA.

Investing gives you a greater chance to grow your money. But unlike cash, investments can fall as well as rise in value and you could get back less than you invest.

Find out more about the HL Lifetime ISA

Little and often adds up

When climbing any mountain, focus on the steps, not on how steep it is

£48,400 is a big amount to try and save, especially if you’re doing it on your own. That in itself can put you off. So break it down, and give yourself smaller goals to aim for.

Although the average deposit is 22%, the minimum lenders were generally accepting pre-COVID-19 was 5%. While lots of these loans have been pulled for the time being, you can still make 5% your first milestone.

It’ll take practice and time, but saving a small amount, every day or week, soon adds up. Especially when you’re getting a bonus from the government.

So how much would you need to save?

Ignoring any growth on your money, if you set yourself a 5-year time horizon, you’d need to save about £147 a month or just under £5 a day. On top of these savings, the government bonus will kick in and add £36.75 a month (25% of £147).

Could you save £5 a day?

It could be a few more packed lunches each week instead of your local coffee shop. Walking or cycling to work instead of using public transport. Or it could be one less takeaway or one less big night out each month.

You don’t have to give everything up. But the little things that we do often have significant power over what we can achieve – both in a positive and negative sense.

Clearly, there’s a lot that this doesn’t take into account. The type of first home you buy, lump sum payments that can come from salary, bonuses, gifts, and family. Or economic factors like inflation or movements in property prices.

Lastly, if you’re keen for a real challenge, you don’t have to settle for hitting a 5% deposit milestone. The more you save now the more likely you are to benefit from a lower mortgage, lower repayments and a lower overall cost of buying your first home.

Find out how much your monthly savings could be worth

Your guide to Lifetime ISAs

If you’re 18-39 and want to invest for your first home or later life, download our Lifetime ISA factsheet to find out more, including:

  • How much you can invest each year
  • The penalties to watch out for when you access your money
  • Where you can invest
  • The options for savers who already hold a Help to Buy ISA

Lifetime ISAs explained factsheet

What did you think of this article?

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

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