How to save for a deposit
A home could cost £267,000 by 2018, according to the Cebr. So now is the time to start thinking about how you can build up a deposit.
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Impact on deposits
If the Cebr predictions are correct, the size of the deposit needed for a home will be between £2,250 and £18,000 more expensive than it is now.
|
Deposit size |
Deposit on a £222,000 property |
Deposit on a £267,000 property |
|
5% |
£11,100 |
£13,350 |
|
10% |
£22,200 |
£26,700 |
|
15% |
£33,300 |
£40,050 |
|
20% |
£44,400 |
£53,400 |
|
25% |
£55,500 |
£66,750 |
|
35% |
£77,700 |
£93,450 |
|
40% |
£88,800 |
£106,800 |
As you can see from the table a reasonable deposit size of 15% requires £33,300 now – which isn’t exactly small change - but it could cost £40,050 in around five years’ time.
The good news is prices haven’t shot up that high yet, so that gives you a good few years to get together a deposit that can meet this sort of cost.
Here are three simple steps to get on your way.
1) Cut back
If you really have aspirations to be a homeowner in the future you will need to work out where you can cut back and make savings now.
A good first step is to set up a spending diary to establish what you spend and where. This task is simpler using MoneyTrack. The free tool from Lovemoney helps you to track and categorise spending across all of your accounts.
Once you have the information to hand, you can go about trying to make cuts. This might mean not eating meals out as much, walking to work, buying fewer expensive brands, or even moving back into your parents' house to save on rent.
From here you can work out how much you can afford to save each time you are paid.
2) Boost your income
If you want to give your monthly income a boost there are plenty of other ways to make money outside of work.
For a start you can earn extra every time you spend on cashback websites or with a cashback credit card.
Also you could do a clear out and sell your old stuff at a car boot sale or online using sites like eBay, eBid, Amazon, Preloved and Gumtree. Read: How to sell successfully on eBay and How to be successful at a car boot sale for more.
Another way to raise money is by switching onto cheaper deals. You could be paying more than you need to on things like your car insurance, broadband or energy and switching could save you hundreds of pounds.
I managed to make an extra £1,350 last year by reclaiming tax, making a PPI claim, selling unwanted stuff and using cashback schemes so it really is possible to give your deposit savings a boost.
3) Grow your money
Once you’ve figured out how to squeeze out some savings from your wages or even a few ways to earn a bit more you should decide where to put your cash to make it grow.
Here are some ideas:
Cash ISAs - The first port of call should be a Cash ISA, where you can enjoy tax-free savings. During 2013-2014 you can save up to £5,760 tax free. If you don’t have the lump sum in place, that works out at £480 each month. You can choose from an easy access, notice or fixed-rate ISA.
The best rate going at the moment is 3.10% from Halifax but you have to lock up your money for five years. Alternatively you can go for the Coventry Poppy ISA which is easy access and pays 2.60%.
Fixed rate bonds - After you’ve used up your allowance you might want to consider using fixed-rate bonds to grow your money. Unfortunately the rates at the moment aren’t that appealing for the amount of time you need to lock away your cash. One of the best rates is the FirstSave Five-Year Fixed Rate paying 3.05%.
Regular savings - If you want to get into the habit of putting money aside each month a regular savings account could be helpful. The best rates of 6% are on offer from First Direct and HSBC but you need to be a current account customer to apply. Elsewhere Norwich and Peterborough has a regular saver paying 4%.
There are also dedicated regular saver accounts for building up a deposit.
The Nationwide Save to Buy Account is available as an ISA or regular saver and pays 2% on balances up to £20,000. The rate isn't amazing, but after six months you can apply for a Nationwide Save to Buy mortgage which only requires a 5% deposit. If accepted you can get cashback depending on how much you have saved. Read more in: Save to buy: the savings accounts that help you build a deposit.
Easy access savings – If you want more immediate access to your funds an easy access account is a good bet. However, rates are pretty low at the moment with nothing paying above 2% and many of the best coming with temporary bonuses that fall away after a year.
You can actually get a better return from a current account. The Santander 123 current account will pay 3% on balances between £3,000 and £20,000 while the Nationwide FlexDirect account will pay 5% on balances up to £2,500.
Credit unions - Savers can often end up with better returns by using credit unions but you can only join one if you share a common interest. This can be where you live or even where you work. Find your local one at Findyourcreditunion.co.uk.
Peer to peer - Aside from traditional savings accounts you could try peer-to-peer savings. This involves lending you money to a business or another individual through a platform like Zopa, Funding Circle or RateSetter. Rates here are often far better than what you find in normal savings accounts. Read What is peer-to-peer (P2P) lending? for more.
Don’t delay
Generally homebuyers with larger deposits get a better mortgage deal, so it will pay to start saving as soon as you can.
> Answer a Lovemoney survey and you'll be entered into the draw for a brand new iPad!
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Comments
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How often have we heard "when IR's go up"? I've news for you, they aren't going up, at least not in any significant way. Of course, mortgage rates are always going to be higher than the Bank of the Banks of England base rate, that's how the banks make their dosh, but if you want to see how IR's can be manipulated by the banksters for a long time to keep their credit bubble game going just look at Japan. True, the desire to create inflation has failed miserably over there as they have tried to get back to the heady days pre-bust, but IR's have been kept low. The UK and many other countries in the West now face the same dilemma, at least for the bankers and politicians, of how do you maintain the asset bubbles and keep the inflationary system going. Higher IR's would kill many of the UK banks off right now - it isn't going to happen. The Government is now trying to keep the bubble house price game going by committing £billions of pounds of taxpayers money to deposits, free money. It doesn't matter whether you are a priced out taxpayer, your taxes will be used to prop up house prices, so it makes sense to take the free money if you have the opportunity to do so. Those that don't take advantage, principled types, run the risk of never being able to buy as house prices go up further on the back of this. Then when house prices get too high again, the Government will no doubt come up with another scheme, 30-40% deposit help, etc, etc. In the end, we will probably have 100% Government backed mortgages and deposits! People can keep on dreaming of higher IR's that result in price falls, but the market we are in is not free, the lessons from 2008 should surely have taught people that by now.
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My wife and I decided to move back in with my parents to save for our deposit, but £30k and one year later, I'm glad we did. Best advice I can give really - it's not pleasant (or perhaps that's just my parents!) but it's the quickest way to get the deposit together. Don't even get me started on these 5% deposit "Newbuy" schemes - what a con. The houses we looked at were all overpriced, and sales folk were all too willing to usher you into a mortgage you could potentially ill afford. Especially as the poster above says, if (and when) interest rates rise.
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Look, get interest rates back to 5.5%, and all will be well again. CEBR's track record - take their Jan 2007 'forecast' for example: CEBR stated that "Britain's housing boom will continue in 2007, with average prices rising by £1,000 a month, a report by a leading think-tank suggests. The Centre for Economics and Business Research (CEBR) said it saw no evidence that increased interest rates would hit the cost of homes. House prices will increase by 7.6%, the CEBR told the Observer newspaper. However, slower growth is predicted in 2008 and 2009 before acceleration again in 2010." Also "The CEBR does not share the fears from some experts that there will be a correction in house prices of between 15% and 20%. "The underlying fundamentals of the housing market continue to support prices," John Ward, one of the report's authors, said. The average UK house price was £187,000 and was likely to be £225,000 by 2010, the CEBR said." The average price was more like 160k.They failed to predict the drop of 25% in 18 months from August 2007. It only needs interest rates to get to normal, and the average house will cost 100k. Lets assume this report is correct. PEOPLE CANNOT AFFORD HOUSES NOW. How are they supposed to get these deposits up together. It's just nonsense. The economy, pensions and savings are wrecked to support a rigged house market. It's appalling that so many spivs and VI can operate and encourage debt slavery to the banks, just to line their pockets and recapitalise the banks that are still bust. The poor hapless borrower TAKES ALL THE RISK. The mortgages taken out now are going to cripple people when interest rates go up. I have emailed various MPs (those with professional interest), Ministers, Osborne, the Treasury and the BoE, asking what protection will people have when interest rates go up and payments double or triple. NON OF THEM can give a satisfactory answer. There is no thinking ahead, just what knee jerk reaction they can apply for the near future. One MP dared to suggest that wages would increase to satisfactory levels and help balance the increased payments. This is the first time in modern history where we have inflation and wages are not keeping up. Why people think the market will be healthier when the government has to support the market with a fake interest rate and mortgage scams, is beyond me.
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11 April 2013