Probably the biggest concern amongst teens and 20-somethings is being able to save for their first property.

With house prices in London and other major cities rapidly increasing over the last decade, it is forcing some young people to stay living with their parents longer and longer.

The average UK house price has increased from £170,000 in 2010, to £235,000 in 2020.

The average house price in London? Well that has increased from about £270,000 in 2010 to £430,000 in 2020!

Unfortunately, during this same 10 year period, the average salary only grew from £26,000 a year in 2010 to around £31,000 today.

In this post we want to provide you with some actionable tips to helping you save for your first property.

This post is in collaboration with our good friend Liam from RichPiggy. Be sure to check out his blog (and Instagram!) here.

Increase Your Income

Many people talk about ‘passive income‘. This is income whilst you sleep. The ultimate goal is to have enough passive income to sustain our lifestyle.

However, in reality, we need to increase our ‘active income‘. This is money that we work for. This sounds obvious but people forget! The more we earn, the more we’ll be able to borrow from the bank.

An Example

Typically, we can borrow 4-5x our salary as a mortgage. For ease, lets say 4.5x. 

You earn £30k a year. This means you can borrow £135k.

If you can manage to increase your income to £40k a year, you would then be able to borrow £180k. This is 33% more!

Back To Increasing Your Income

Unfortunately, the government doesn’t match increasing the minimum wage with inflation, but that doesn’t mean you can’t earn more money.

Take responsibility of your finances. Up-skill yourself, whether that’s through formal education or self education. Become of more value to your company or start a side-hustle.

We know people that make money through side-hustles including blogging, freelancing writing or even selling products through social media or a website.

Increasing your income is important as it will allow you to put that new money aside, rather than cutting back strenuous amounts on your normal spending, and will also allow you to feel more comfortable with mortgage repayments.

Imagine if you manage to make just an extra £100 per month? Thats £1,200 over the course of a year. Put that money into a LISA (discussed later) and this will become £1,518!

Probably the biggest concern amongst teens and 20-somethings is being able to save for their first property.

With house prices in London and other major cities rapidly increasing over the last decade, it is forcing some young people to stay living with their parents longer and longer.

The average UK house price has increased from £170,000 in 2010, to £235,000 in 2020.

The average house price in London? Well that has increased from about £270,000 in 2010 to £430,000 in 2020!

Unfortunately, during this same 10 year period, the average salary only grew from £26,000 a year in 2010 to around £31,000 today.

In this post we want to provide you with some actionable tips to helping you save for your first property.

This post is in collaboration with our good friend Liam from RichPiggy. Be sure to check out his blog (and Instagram!) here.

Increase Your Income

Many people talk about ‘passive income‘. This is income whilst you sleep. The ultimate goal is to have enough passive income to sustain our lifestyle.

However, in reality, we need to increase our ‘active income‘. This is money that we work for. This sounds obvious but people forget! The more we earn, the more we’ll be able to borrow from the bank.

An Example

Typically, we can borrow 4-5x our salary as a mortgage. For ease, lets say 4.5x. 

You earn £30k a year. This means you can borrow £135k.

If you can manage to increase your income to £40k a year, you would then be able to borrow £180k. This is 33% more!

Back To Increasing Your Income

Unfortunately, the government doesn’t match increasing the minimum wage with inflation, but that doesn’t mean you can’t earn more money.

Take responsibility of your finances. Up-skill yourself, whether that’s through formal education or self education. Become of more value to your company or start a side-hustle.

We know people that make money through side-hustles including blogging, freelancing writing or even selling products through social media or a website.

Increasing your income is important as it will allow you to put that new money aside, rather than cutting back strenuous amounts on your normal spending, and will also allow you to feel more comfortable with mortgage repayments.

Imagine if you manage to make just an extra £100 per month? Thats £1,200 over the course of a year. Put that money into a LISA (discussed later) and this will become £1,518!

House Deposit
House Deposit

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Work Out A Budget

Run a simple calculation to figure out how much money you would need to save up.

Are you aiming for a 20% deposit on a £200,000 property, or a 10% deposit on a £400,000 property?

Work out the price of the houses in the area you want to move into, and come up with an amount that you would like for a deposit.

This is absolutely critical. Rather than saving random amounts each month, set an amount in stone. The more specific, the better. 

For example, saving £325 each month for the next two years in order to save up for your deposit. That specific goal will keep you focused. 

An Example

Let’s say the deposit amount is £30,000 and you want it in 4 years. This means you would need to stack away £625 a month for 4 years (Assuming one person saving, and not including any interest rates from savings or government incentives from Help to Buy ISA or Lifetime ISA).

By running a budget like this, you will become familiar and aware with how much you need to save. 

If you decide to open a Lifetime ISA (discussed later), include the government contributions and interest rates in your calculation.

Look at your life and see where you can cut back on unnecessary expenses that can instead be used towards your savings.

We have wrote about saving money before. See this post for 5 ways to save money.

Use A Lifetime ISA

For anyone looking to save for a deposit on their first property, Lifetime ISA’s are great!

Simply, a Lifetime ISA allows you to save up to £4,000 per tax year, and is topped up by a 25% government bonus every year (if you save the full £4,000, they will add £1,000).

This simply allows you to receive a free £1,000 from HMRC that can go straight into saving for the deposit on your first property. This is a risk-free 25% return!

However, some nuances with the Lifetime ISA are:

1. You will pay a 25% withdrawal charge if you withdraw for any reason apart from buying your first property, if you are terminally ill or if you are aged over 60.
2. The property must be your first, and can not cost more than £450,000
3. The ISA must be open for at least 1 year before funds can be used

In general, the Lifetime ISA is better than the Help to Buy ISA when it comes to buying your first home!

Use A Cash LISA

You can also choose between a Cash Lifetime ISA or a Stocks and Shares Lifetime ISA. Saving for a property is something that you probably wouldn’t want much risk with so a Cash Lifetime ISA would be better.

Moneybox and The Nottingham Building Society are the market leaders for Cash Lifetime ISA’s. We currently have a Cash Lifetime ISA with The Nottingham earning 1.25%.

Thats a 26.25% risk-free return each year, which will all go towards that first house!

If you want a Stocks and Shares ISA, AJ Bell and Hargreaves Lansdown and two of the best providers out there. If you know you can put this money aside and will not need to touch it again, a Lifetime ISA is a great way to go. 

The Stocks & Shares LISA’s are more beneficial for people who will be using that money for retirement.

It’s important to note – if there’s a chance you may need to withdraw the money as you don’t have a substantial emergency fund, then a high-interest savings account would be better as that 25% will not only wipe out the government bonus, but also take part of your own money that you saved in there due to the withdrawal fee mentioned above..

Work Out A Budget

Run a simple calculation to figure out how much money you would need to save up.

Are you aiming for a 20% deposit on a £200,000 property, or a 10% deposit on a £400,000 property?

Work out the price of the houses in the area you want to move into, and come up with an amount that you would like for a deposit.

This is absolutely critical. Rather than saving random amounts each month, set an amount in stone. The more specific, the better. 

For example, saving £325 each month for the next two years in order to save up for your deposit. That specific goal will keep you focused. 

An Example

Let’s say the deposit amount is £30,000 and you want it in 4 years. This means you would need to stack away £625 a month for 4 years (Assuming one person saving, and not including any interest rates from savings or government incentives from Help to Buy ISA or Lifetime ISA).

By running a budget like this, you will become familiar and aware with how much you need to save. 

If you decide to open a Lifetime ISA (discussed later), include the government contributions and interest rates in your calculation.

Look at your life and see where you can cut back on unnecessary expenses that can instead be used towards your savings.

We have wrote about saving money before. See this post for 5 ways to save money.

Use A Lifetime ISA

For anyone looking to save for a deposit on their first property, Lifetime ISA’s are great!

Simply, a Lifetime ISA allows you to save up to £4,000 per tax year, and is topped up by a 25% government bonus every year (if you save the full £4,000, they will add £1,000).

This simply allows you to receive a free £1,000 from HMRC that can go straight into saving for the deposit on your first property. This is a risk-free 25% return!

However, some nuances with the Lifetime ISA are:

1. You will pay a 25% withdrawal charge if you withdraw for any reason apart from buying your first property, if you are terminally ill or if you are aged over 60.
2. The property must be your first, and can not cost more than £450,000
3. The ISA must be open for at least 1 year before funds can be used

In general, the Lifetime ISA is better than the Help to Buy ISA when it comes to buying your first home!

Use A Cash LISA

You can also choose between a Cash Lifetime ISA or a Stocks and Shares Lifetime ISA. Saving for a property is something that you probably wouldn’t want much risk with so a Cash Lifetime ISA would be better.

Moneybox and The Nottingham Building Society are the market leaders for Cash Lifetime ISA’s. We currently have a Cash Lifetime ISA with The Nottingham earning 1.25%.

Thats a 26.25% risk-free return each year, which will all go towards that first house!

If you want a Stocks and Shares ISA, AJ Bell and Hargreaves Lansdown and two of the best providers out there. If you know you can put this money aside and will not need to touch it again, a Lifetime ISA is a great way to go. 

The Stocks & Shares LISA’s are more beneficial for people who will be using that money for retirement.

It’s important to note – if there’s a chance you may need to withdraw the money as you don’t have a substantial emergency fund, then a high-interest savings account would be better as that 25% will not only wipe out the government bonus, but also take part of your own money that you saved in there due to the withdrawal fee mentioned above..

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We won’t spam you whatsoever, and will never share your details.

Further Points To Consider

Buying as a Couple

If you are a couple looking to buy your first property, make sure you sit down with each other and actually talk about the budgeting, savings accounts, and so on.

Come to an agreement that works for both of you so you both know how much you will each be saving each month and where that money is going to go

Importantly, if you are both first time buyers, you can both have your own Lifetime ISA’s and use both when it comes to purchasing your property!

Increase your Credit Score

Increasing your credit score is a huge factor that will affect the interest rates on your mortgage.

Things you can do straight away to improve it are making sure you’re registered to vote and requesting your credit report and disputing any claims on there.

If you have a credit card always make sure to pay it off in full each month!

To learn more about credit scores, read this definitive guide by Liam over at RichPiggy.

Final Thoughts

Saving for a house deposit is difficult, but it is possible.

The main limiting factor for many when it comes to getting on the property ladder is to save enough for the first deposit.

Increasing your active income, utilising government schemes like the LISA. and managing your money well through a budget, will put you in the best possible position!

Further Points To Consider

Buying as a Couple

If you are a couple looking to buy your first property, make sure you sit down with each other and actually talk about the budgeting, savings accounts, and so on.

Come to an agreement that works for both of you so you both know how much you will each be saving each month and where that money is going to go

Importantly, if you are both first time buyers, you can both have your own Lifetime ISA’s and use both when it comes to purchasing your property!

Increase your Credit Score

Increasing your credit score is a huge factor that will affect the interest rates on your mortgage.

Things you can do straight away to improve it are making sure you’re registered to vote and requesting your credit report and disputing any claims on there.

If you have a credit card always make sure to pay it off in full each month!

To learn more about credit scores, read this definitive guide by Liam over at RichPiggy.

Final Thoughts

Saving for a house deposit is difficult, but it is possible.

The main limiting factor for many when it comes to getting on the property ladder is to save enough for the first deposit.

Increasing your active income, utilising government schemes like the LISA. and managing your money well through a budget, will put you in the best possible position!

first time buyer
first time buyer
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