First-time buyers take drastic measures to save for a deposit

Selling off belongings, working overtime and moving back in with mum and dad are among popular tactics used by budding homeowners to step on to the property ladder.

What’s the latest?

Aspiring first-time buyers are taking ‘extreme’ measures to save money for a home deposit, with 37% working overtime, and 19% selling personal belongings.

One in five (22%) first-time buyers have moved in with family to save on rental payments, according to research from Which? Mortgage Advisors, which surveyed over 2,000 people.

Apart from shopping around for the best banking deals (24%), 41% of budding first-timers are going out less, while a further 41% have cut out non-essentials.

Six out of 10 people hoping to get on to the property ladder manage to set aside money towards their goal every month, but many are having to make significant sacrifices to raise funds, including taking fewer holidays (38% spend less on travel).

“The prospect of saving a deposit for a first home can be daunting, unrealistic and even downright depressing,” said David Blake, principal mortgage adviser, Which? Mortgage Advisers.

Why is this happening?

Strong house price growth in recent years has left first-time buyers needing to save increasingly high amounts in order to get on to the property ladder.

Despite the majority of aspiring first-time buyers regularly setting aside money towards the purchase of their home, nearly half were only able to save the equivalent of 10% of their property’s value.

With the average UK home costing nearly £212,000, according to Nationwide, even putting down a 10% deposit means saving over £21,000, something many people can only achieve by making significant sacrifices.

Who does it affect?

Despite the high levels of commitment first-time buyers showed towards their savings goal, many continued to rely on external funding to make their homeownership dream a reality.

Three out of 10 people said they had used an inheritance to top up their deposit, while 23% used a contribution from their parents, friends or other family members.

In fact, it is estimated that the Bank of Mum and Dad will hand over £6.5bn in 2017 to help their children get on to the property ladder, according to Legal & General.

Sounds interesting. What’s the background?

The good news is that there are a number of government schemes to help first-time buyers save for a deposit.

Under the Help to Buy ISA, people saving for a deposit can set aside £200 a month tax free.

When they come to buy a home, the Government will top this up with a bonus of 25% of the amount saved, up to a maximum of £3,000 on savings of £12,000.

The Help to Buy scheme also enables people to buy a new build property with a 5% deposit, with the Government providing an equity loan worth 20%. The loan is interest free for the first five years.

For those buying in Greater London an equity loan of up to 40% of the property’s value is available.

Read our guide on 8 things to know about ISAs.

Other initiatives include shared ownership, which enables buyers to purchase a share in a home of between 25% and 75%, and the Starter Homes Scheme, under which people aged between 23 and 40 who have not previously owned a property will be able to buy one at a 20% discount to the market price.

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