Saving up enough money before purchasing a house is crucial for many reasons. First, you'll probably need to get a mortgage and a deposit is required. It means that you have to save up to around 5 to 10% of the total value of the home you want to buy. However, it is important to have saved more than the deposit you are putting down to be able to cover any expenses in case your circumstances change suddenly. But, with soaring rental prices and overall inflation, how are people managing to save up for a deposit and step onto the property ladder?

1. Come up with a financial plan

Mary, homeowner at the Reach in Thamesmead, SE2, was able to purchase her 2-bedroom home at 30 years old through Shared Ownership with a deposit of £10,000. She found this alternative to buying a home outright is the perfect option for first-time buyers looking to buy alone with a low deposit. She comments:

"You don’t need a huge amount of money, it’s a stepping stone you can achieve on your own, you can grow your equity and have a place to call home for a long period of time. I think more people should know about this alternative to buying a home outright!”

To achieve her homeownership goal, Mary explains that she had to take a hard look at her finances and advises people to “set up a financial plan, including an exit plan, look at all the different scenarios and think about what you might want to do in 5 years’ time."

When considering stepping onto the property ladder, it is crucial to analyse what your financial situation is like right now and what it’ll be like in the years to come. Before being ready to buy, many people must take a few months to get on track when it comes to saving up money for a deposit for example.

2. Set up a Lifetime ISA to save up for your deposit

Finding the right savings account to put aside the amount you need for a deposit is crucial. The Lifetime ISA (Individual Savings Account) is a great way to reach your savings goal if you are buying a house.

If people can use this account to fund retirement, it is also especially useful when purchasing your first home. The key advantage is that you can benefit from a government bonus. For every £4 deposited into the account, the government contributes a £1 bonus, up to a maximum of £1,000 per year. This bonus is a substantial boost, providing a 25% return on eligible contributions.

To qualify for the government bonus, individuals must be aged 18 to 39 when opening the account and must use the funds either to purchase their first home or for retirement savings after the age of 60. If you are using the money to help buy your first home, the value of the property can be up to £450000. This is why this is especially advantageous for people looking to buy a one-bedroom home in London or to purchase their first home outside of the capital.

This is the route Anastasia, homeowner at The Switch in Earlsfield, SW18, chose. The young first-time buyer explained that her Lifetime ISA bonus gave a great boost to her budget. She was able to step onto the property ladder through Shared Ownership without compromising on living in London.

Young woman assessing her finances

To speed up your homeownership journey, start by comparing savings account to put money aside

3. Move back with family to save up

The route to owning your first home can require a bit of planning and strategic decision-making. Danielle, homeowner at Newman Place in Oxford, explains that being able to live with her parents meant she managed to save up money for a deposit quicker than expected. The young professional bought a 2-bedroom, 2-bathroom home through Shared Ownership at only 27 with a £13,400 deposit.

To make sure that moving back with family doesn’t turn sour, there are a few key rules to play by:

  • First, prepare a clear plan for how much you are planning on saving up and how long you would need to stay with your family to reach your saving goal. Being able to clearly communicate how long this situation will last and celebrating the milestones along the way will reduce the risks of tension.
  • Second, do establish how you will be contributing towards certain costs like bills or groceries. Even if your family doesn’t openly ask that from you, it will be much appreciated and doesn’t risk hindering your saving goals as much as paying rent would.
  • Third, to keep your spirits up, make use of this time to educate yourself on how to improve your credit score and learn more about the housing market. It can also be useful to explore government assistance programmes such as Shared Ownership.

4. Buy through a government-backed scheme such as Shared Ownership

There are different alternatives to buying a home outright now available, such as Shared Ownership. Ben, homeowner at Zone at Oval village, SE11, used the scheme to purchase a one-bedroom home in London, a dream he thought would only happen much later in life. He explains:

“I had been saving for 4 or 5 years but didn’t think I had enough yet for a deposit on a London property. Before seeing Zone, I hadn’t heard of Shared Ownership, so I did some research and realised that this was a brilliant way for me to get onto the property ladder. I put down a 5% deposit, which was just under £8,000 - a lot lower than I had assumed would be possible in this location - and my mortgage payments are £981 per month.”

Shared Ownership is a more affordable way to buy since it is a paced way to become a homeowner. At the start, you can buy as little as 25% of your home which means that you only require a mortgage for the value of that share. As Ben experienced, the deposit can be as little as 5% depending on your circumstances meaning that you could step onto the property ladder with less than £10,000 saved.

For the rest of the shares, buyers pay a subsidised rent and can look into purchasing them at a later date. That process is called Staircasing and it means that homeowners through Shared Ownership can eventually own their home fully.

If you are interested in stepping onto the property ladder sooner through Shared Ownership, you can have a look at our homes requiring a low deposit this winter.

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