The cost of raising a deposit for first-time buyer is rising and the pandemic has only made things worse.
In the last week alone two reports have backed up – with cold, hard statistics – this growing problem of which most potential first-time buyers are already all-too aware.
For starters, high house prices relative to the average earnings are creating a major barrier according to Nationwide Building Society, one of the UK’s biggest mortgage lenders.
It said house price inflation had now exceeded growth in earnings and this meant raising a deposit had become a ‘significant challenge’. Indeed a 20% deposit was now equivalent to 110% of the pre-tax income of a full-time employee – a record high which is up on the 102% of last year.
Then Aldermore Bank’s First Time Buyer index revealed this week how as many as 58% of first-time buyers who had purchased a property since the start of the pandemic had to raise a larger deposit because of Covid.
The average increase, the lender’s figures show, was over £22,000 which inflated the typical deposit to more than £62,000.
On top of this half of the first-time buyer quizzed by Aldermore said they had experienced a house purchase fall through – a situation which added, on average, £2,403 to their bill.
Jon Cooper, head of mortgage distribution at Aldermore said: “Becoming a homeowner is a wonderful step forward in a person’s life but our research shows the persistent effects of the pandemic are causing high levels of financial challenges in the journey.”
Despite the challenges, the first-time buyers Aldermore spoke to said they were glad they got onto the property ladder. Indeed, 78% said the stress was ‘worth it’ to find a home.
Jon added: “I would advise would-be buyers to plan carefully to ensure they are prepared for the range of costs involved and to seek a broker who can be a great help in cutting through the jargon and guiding you through the process.”
Aldermore has offered the following advice to would-be buyers to help them
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Save a set amount each month
Instead of putting aside only the money you have left over at the end of the month, the lender suggests, try to save a set amount regularly and consistently. The best time to put the cash aside is at the beginning of the month.
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Shop around for savings products
Aldermore said it’s worth looking at all the options for savings accounts, not just the big high street banks which can often offer lower rates than smaller competitors.
It added that while small differences in rates may seem slight, the differences can snowball through compound interest and really add up over time, making it easier to reach your goal.
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Assess your living situation
If possible, try to find ways to make renting more affordable. Aldermore suggested if you live alone, to consider renting with friends or living in a houseshare as this would typically be cheaper than renting a one bedroom property.
Not only will the rent be cheaper, but you will be sharing utility bills which may enable you save more each month.
Moving in with parents or family, temporarily, is also a good option or those who are able.
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Take advantage of help for first time buyers
Check out the various government schemes available to support those attempting to get onto the property ladder.
Help to Buy: Equity Loan is available until 2023 for those open to the idea of buying a new build, for example. Plus there are several other options, including the shared ownership and the newly launched First Homes scheme.
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Cut down on unnecessary spending
Aldermore warned unnecessary spending habits may be sabotaging your savings. It advises making small changes over time, such as making your own lunch a few days a week. This might not seem like much of a saving for one day, but over time it can add up to quite a stash.
The bank also advised deposit savers to review direct debits and bank statements to identify any automated payments they do not make use of anymore.
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Review your savings habits regularly
Struggling to meet your target amount? Aldermore suggests reducing your monthly contributions to make them more manageable.
If you receive a pay rise, a financial gift or find your monthly outgoings are reduced, consider increasing these contributions to reach your homebuying goal sooner.
You can find more savings tips, plus advice on how much to save, in our First-Time Buyers Savings Guide.
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