In line with our risk management framework, today we published our Q4 2019 performance update.
3 handy tips when saving for your first home
For millions of people, particularly first-time buyers, purchasing a home is more difficult than it used to be, and it’s no exaggeration to say that there’s a housing crisis in Britain. While house prices have fallen slightly in London since the summer of 2014, buying in Greater London remains an impossible dream for most first-time buyers, and prices have skyrocketed in many ‘forgotten’ parts of the UK over the past year or so too.
Interest rates may be going up soon as well, and stricter lending laws in the wake of the financial crisis - brought on by reckless lending in past years - have rendered it more difficult to get a mortgage. These newer laws were put in place to protect borrowers as well as lenders, but can make the process enormously frustrating for first-timers or those recovering from their own financial crises.
Nevertheless homeownership remains a goal for millions who are tired of paying rent. But, to put it mildly, saving for your first home can be a challenge. Here are a few tips that might make things easier.
1. Make sure you’re financially ready
No matter how sick you are of renting, take some time to review the advantages and disadvantages of both renting and owning. If the cards stack in favour of ownership, sit down and figure out how much of a house you can truly afford. Be thorough: calculate your income as well as all of your bills and expenses. Lenders will look closely at these matters, and will no doubt put you through a ‘financial stress test’ before you even get started, so sort it out before you approach a lender.
Apart from monthly mortgage payments, consider what you will need for a down payment, closing costs and moving expenses. Also keep in mind that if your mortgage payment takes up almost all of your monthly income, leaving you next to nothing for other bills and the occasional luxury, your home will own you rather than vice versa! There are numerous online sources with mortgage calculators which you can make use of; or otherwise you could consult a qualified expert to help you decide if you’re ready to own a home.
2. Set savings goals and stick to them
That’s easier said than done, and we don’t suggest you deprive yourself of all pleasures and luxuries in order to save for a house! But do sit down and make a budget, and find ways to cut corners, whether it’s the proverbial daily latte that personal finance gurus are always harping on about, your iTunes movie rentals or some other luxury you can actually live quite happily without. If budgets aren’t your strong suit there are numerous online resources, books, and software programs to aid you. While it may seem that we’re overstating the obvious, do whatever you can to spend less and save more, and you might be surprised by how quickly it adds up.
3. Educate yourself about “Help to Buy” ISAs
In March 2015 the Government announced a scheme to give first-time house buyers up to £3,000 through a new Help to Buy ISA. This essentially amounts to a 25 per cent subsidy for first-time buyers, who will receive £50 for every £200 they save for a deposit. Chancellor George Osborne claimed that the new ISAs will “tackle two of the biggest challenges facing first-time buyers — the low interest rates when you build up your savings, and the high deposits required by the banks.” The bonus will be available from the autumn for homes worth up to £450,000 in London and up to £250,000 elsewhere, and because they are limited to one per person, rather than per home, couples buying together may each receive the bonus.
However, this scheme is no panacea. Some experts have pointed out that by the time prospective buyers save up for their deposit, house prices will doubtless have risen again, making the new ISAs all but useless for many who are currently unable to get on the housing ladder. Others think the scheme fails to address another major issue in the housing crisis, which is a shortage of inventory. Moreover, the scheme only allows cash savings, which may limit its appeal to some.
Still, H2B ISAs may prove helpful for many first-timers, particularly in the lower-value markets, so bear this in mind and keep an eye out for further developments.
If after careful consideration you decide that you’re not quite ready to take the leap into house ownership, that’s okay too. Owning a house is a worthwhile dream, but even if you have to defer that dream for a while you can still achieve it if you set your goals and stick to them.
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