The post office has released a new tool that can tell you how much you’ll need to be saving per month to be able to afford a deposit for a home along with some research they’ve done about first time buyers.
Now I have questions. They claim that the average first time buyer will spend four years saving towards their deposit. This seems incredibly optimistic…could YOU save for a deposit in just four years? How much would you need to save? Is just being frugal and switching to supermarket own brands really going to help?
The deposit savings journey
The average deposit for first homes in the UK last year was £51,500, according to the Office for National Statistics. This varied from £21,571 in Blackpool to £173,431 in London
According to the subjects of the study, “Approximately 70% of this deposit is reached through saving, with recent FTB (First Time Buyer) households setting themselves an average savings target of £815 a month – ranging from £565 in Scotland to over £1,000 for prospective FTB households in London. To achieve their deposit goal this means putting aside 20% of the monthly joint income of first-time buyer households (£4,105 a month) – which is often split between two partners contributing. These monthly targets – often coupled with additional monetary support from loved ones averaging £15,489 (30% of the average deposit), allow the average FTB to reach their deposit goal in less than five years.”
So how have they done this?
“FTBs commonly sacrifice luxuries such as going on holiday (31%), nights out (30%) or takeaways (26%)”
So what if you don’t have holidays, nights out or takeaways?
“One in five (22%) move out of their home to save more money, either moving back in with their parents (13%) or downgrading their rental property to something more affordable (9%). Recent FTBs also looked for ways to boost their income in order to keep up with their deposit goal (84%). This includes taking on overtime as part of their existing job (30%), looking for a higher paying role (21%) or taking on additional paid work to boost their income (17%).”
They make is sound so easy, right? Sorry Post Office, I think I need some tips…
The Post Office’s Top tips for people saving towards their first home
1. Cut back on the essentials – the easiest (and most common) way people manage to set more money aside when saving for their first home is finding ways to cut down on their day-to-day spending. This could be as simple as switching to supermarket basic brands, comparing energy and mobile providers to see if you could reduce your bill or even seeing if it’s possible to reduce your rent by moving to a less expensive property.
2. Map out a deposit goal and stick to it; particularly if putting aside money with a partner – very few people save without assistance from their loved ones and first-time buyers will often be planning to purchase their home with a partner. Be sure to agree how much you can both commit to save realistically on a monthly basis and hold each other accountable, so it’s more difficult to splurge. Look for tools that may help you, there are a range of apps and calculators freely available to help you plan your savings journey, such as the Post Office online tool: www.postoffice.co.uk/mortgages/this-is-my-home.
3. Can you reduce how much you need to save? – If your goal seems out of reach you could always consider how you might reduce the pot you need to save, such as buying a smaller property, looking at a different location or considering no-deposit mortgages.
4. Have an honest conversation with loved ones about financial support – it’s common for FTBs to get some degree of financial support from their families as they attempt to get on the ladder – more than half will do so as they attempt to pull the money together for their first home. Be sure that when doing so you have an open and honest conversation about the terms of the agreement. If they are providing you with a gift or a loan and if it’s a loan, being clear on what they expect in terms of regular repayments.
5. Keep an eye on how affordability shifts and incorporate that into your plan – four years is a long time in our uncertain housing market and you want to make sure you’re aware of how things shift while you save. Be sure to keep an eye on how local property prices change so you can make the most informed purchase possible.
6. When looking to buy, seek out up-and-coming areas – young buyers often need to adjust their expectations when it comes to location but you can often sniff out which areas are likely to increase in value by looking out for new developments, new businesses setting up shop in the area or improvements in local schools and crime rates.
7. Don’t be disheartened if you have a set-back – 13% of FTB savers feel like a failure for not reaching their savings goal in the time they initially intended and it’s very common for savers to end up dipping into their deposit fund to pay for other expenses. While it’s obviously best not to make a habit of this, prospective homebuyers shouldn’t let a small slip-up deter them as they continue to save towards their goal.
Time to run a few numbers…
I decided to dig a little further and look into exactly how much I would need to put away in order to be able to afford a deposit for a home and the numbers aren’t pretty.
After trying out the tool, I discovered that If I were to be able to save enough for a deposit in 4 years in the area I live in now, I would have to save £1104 a month! That’s £255 a week!
How much would I need to save in order to be a homeowner before I die?
To work out how much I should be saving if I want to be able to afford my own home before I dropped dead (that’s if the second and third jobs don’t get me), I worked backwards. Usually, the oldest age you can be at the end of your mortgage is 70 and the average mortgage is 25 years. So ideally I’d want to have your deposit by the time I’m 55.
Is this depressing you yet? No? Minus your age from that number because that’s the maximum number of years you have to save for your mortgage.
Then I the Post Office’s new This Is My Home tool and selected the borough (or area) I call home…
My figure came out as £220 a month (£51 a week) every month until I hit 55. While that might sound like nothing to a some people reading this, it is a lot of money to a lot of people. One in 5 of the population of the UK are in poverty.
With house prices and demand increasing, the cost of living surging and real wages decreasing, the amount I’d need to save in order to be able to afford my own home before I die is only going to increase. And there’s only so much that switching to supermarket own brands can do.
I guess the takeaway here is that, a lot of us are in the same boat and it’s sinking. Don’t let people tell you that tightening your purse (even more than you already do) is the way into home ownership.
TLDR; Probably not.
Is quitting your job and moving to a cheaper area away from everyone you know really realistic? Have you found ways of sacrificing in your life further in order to save? Let me know in the comments…