Within the deluge of ‘New Year New You’ posts, there’s also an opportunity to really reflect on what you want in the future. These tips might not get you on the property ladder within the year, but if it’s going to take you a while to save, you may as well start now! After all, the time will pass quicker than you may expect.
So why not make 2021 the year you make a start turning that homebuying dream into a tangible goal?
The following tips are easy starting points to get you going. For more information on whether you can get on the property ladder this year, and tips on how to speed up the process, sign up for our ‘Can I become a homeowner in 2021?’ webinar with property expert Kate Faulkner in February.
1. Open a Lifetime ISA
With the close of the Help to Buy ISA, the Lifetime ISA (LISA) is now the only product on the market still offering a government bonus to help you top up your savings for a deposit. You’ll get a 25% bonus on whatever you save - quite literally, free money to help you buy a home.
What you need to know:
You can put a maximum of £4,000 a year into the LISA, there is no monthly cap
You can’t take the money out unless buying a home, or when you reach 60 years old (if you do, there’ll be a penalty)
You have to be over 18 but under 40 to open a LISA
The property needs to cost £450,000 or less
You need to have opened the LISA at least 12 months before you buy a property
There are a few different LISA providers, but with the government bonus, there’s no reason not to open it. Even if you managed to set up an automatic transfer of £50 per month, by the end of the year with the bonus you’d have saved £750. There’s no reason not to take advantage of the scheme.
2. Check your credit score
It’s surprising how few people are active in checking or looking after their credit score. Get a credit report from Experian (they offer a free trial) and see if there are any issues. An unpaid bill from years ago, or a missed payment for a phone contract shouldn’t be the thing standing between you and your dream home. By fixing your credit score and taking steps to improve it, you’ll not only be a more appealing candidate for a mortgage when the time comes, but you may have access to better rates.
Find out more about checking your credit score.
3. Get your finances in order
When you look into your credit history, you might find a few habits that aren’t working out for you. For example, constantly falling into your overdraft, or having multiple loans and credit cards that need to be paid off. Print off a few months’ worth of statements and go mad with the coloured pens.
Highlight in one colour outgoings that are necessary – bills, rent, utilities, travel.
In another colour, highlight anything that is a debt – repaying a loan or a credit card, or items you’ve bought on credit.
In another, identify fun stuff – drinks at the pub, meals out, going to the cinema, buying new clothes.
Now look for patterns and places to save. If you’re spending more than you’ve got coming in every month, it’s time to make a few changes. Is it the trips to the corner shop, the daily coffees, the rounds at the pub? Identify a few small places where you can save.
It might be that your ‘fun’ budget is looking pretty healthy, but are there debts you could pay off sooner? Are there savings to be made on any of your bills? None of these changes have to be huge, but making sure your accounts look healthy now will make saving easier, and getting a mortgage more straightforward when the time comes.
4. Figure out what you want
Knowing what you want is going to make it easier to plan and save. Having a clear understanding of what you need from your home and where you want to be will help you save appropriately. It’s worth remembering that you’re probably not going to stay in your first home forever. So, whilst you want to make sure you’ll be happy there, remember to be open to compromise!
Start with what you know you need – do you need to be near work or family, or are you open to starting over somewhere new? Being open to different locations means potentially lower prices, or being able to afford a house instead of a flat.
Do you need a parking space, or a room for an office if you work from home?
Make a list of ‘absolute must have’s’ and another with ‘nice to have’s’.
Then do a search on a property portal like Rightmove or Zoopla to get an idea of prices. You can also use our First Time Buyer Price Index to show the average cost of properties for First Time Buyers in that area.
5. Create a savings plan
Once you know the average price of the type of property you’d like, there are two things you need to know:
A mortgage lender will usually lend up to 4.5 times your annual income
Any shortfall between that amount and the property price would be your deposit.
E.G. You find a flat you like for £430,000.
You are buying with a partner, and your combined income is £55,000.
A mortgage lender would give you £247,500
You’d need a deposit of £182,500
It might be achievable, but it seems like hard work and it might take a long time.
Start from the amount of mortgage you’d be approved for, and look for properties in that price range to help you figure out a deposit amount. A rule of thumb is looking at 15-20% of the property price as a deposit.
However, if this starts to seem impossible, consider Help to Buy or Shared Ownership properties where the deposit is smaller. Perhaps work on saving your first £5,000, or £10,000 and go from there.
Having a savings goal will keep you motivated and focused, but the easiest way to get saving is to automate them so you don’t think about it. Send a set amount to your Lifetime ISA every month, as soon as you get paid. If you have anything left at the end of the month, top it up. If you manage to save the £4,000 maximum amount for your LISA each year, you’ll get your £1,000 bonus. Already, you’d be on your way to a healthy deposit amount!
For more tips on saving for your deposit, have a look at our savings guides:
Starting to Save
Sacrificing to Save
Supersizing your Savings
Whether you’re wondering whether buying is possible, or you’ve been saving for a while and can’t tell if now is the time to jump, join us for our webinar with property expert Kate Faulkner, where we’ll be answering your questions about becoming a First Time Buyer!