Watch any program about property on television, or read any newspaper or magazine article about buying real estate, and you’d be forgiven for thinking that buying your first home is out of the reach of most people. And while it’s clear how lucrative property investment can be, the same problem faces would-be property investors.
It’s certainly true that property prices are higher than they’ve ever been, yet with interest rates at an all-time low – and set to remain there for some time – buying a home has never been more affordable.
If only you could save that deposit, as a first time buyer you’d stop throwing money away on expensive rents; and as an investor you’d start benefiting from rental income and long term capital growth.
Here we look at how you can save the deposit you need to make your dreams come true in less than a year.
How not to get that deposit
The biggest barrier to investing in a property is saving that deposit. Conventional wisdom says you should beg, steal, or borrow the money you need to take that first step on the property ladder.
According to the Office of National Statistics, the average price paid by first time buyers in Britain is now £207,000. Not many parents have £50,000 cash sitting doing nothing – so begging the deposit is probably out of the question. Stealing it will just get you a jail sentence (though the rent is cheap, this isn’t a home choice we would recommend), and few finance companies will lend you the money to put down as a deposit on your first home: it kind of defeats the object of asking for a deposit in the first place.
All the same arguments hold true for property investors: just how do you get that deposit together?
You may not need to save as much as you think
The good news for a first time buyer is that the deposit you need may not be as large as you think. If you want to buy a brand new home, for example, the government could give you up to 20% of the asking price toward your deposit under its Help to Buy scheme. This has to be repaid, but you’ll pay no interest on this for the first five years; and even after this time the interest rate remains unbelievably low.
But you’ll still have to save a 5% deposit. That’s around £10,000 on the average first time buyer’s home price, but way below the £50,000 you thought you needed before reading this article.
Property investors might need to save no money toward their first investment property: if you own a home already, you might be able to benefit from the equity in it and release the funds needed for the deposit on your property investment. And if you find yourself a little short, don’t despair – the following saving strategies work perfectly for you, too.
Five tips to save your deposit
Saving that £10,000 is easier than you think. It just takes a planning and a few sacrifices on the way. For a couple looking to buy their first home, here are five things you could do today which will add up to that deposit in a year’s time:
1. Drink instant coffee
Okay, so you love a Starbucks before you get to work, but have you ever stopped to think how much that costs you? With an average price of £2.50 per cup, switching to instant coffee in the office will save you an incredible £1,200 per year.
2. Take a packed lunch to work
We all need to eat at lunchtime, but just like the money you could save by making your own coffee there’s a small fortune you could put in your piggy-bank if you make your own lunch. Instead of spending £5 each day on a shop bought sandwich, salad, drink, and snack, spend half that and eat healthier. That’s good news for your waistline and another £1,200 to add to your deposit savings account.
3. Stop wasting food and buy more wisely
Did you know that we throw out around a quarter of all the food we buy? The average spend on food is around £80 per week. Eating more wisely and learning to cut out that waste will immediately save you £15 – or £700 per year.
Instead of buying processed foods or pre-packaged ‘TV dinners’, cook from scratch. Replacing your weekly takeaway with a home cooked slap-up meal will save you another £800 in a single year.
Buying cheaper brands could save you up to 30% on your food shopping bills: another £886 over the course of a year.
That’s an incredible £2,366 saving on your food bills alone!
Take the NHS Eat4Cheap Challenge and start eating healthier and saving now.
4. Always take a list with you
Whenever you go shopping, always take a list with you. Not only will you ensure you buy only what you need, but if you stick to your list you’ll cut out all those impulse buys that seem nothing at the time but add up to a whole bundle of cash.
According to research conducted by True Potential, every person in Britain spends an average of £674 every year on stuff we don’t really need bought on the spur of the moment. For a couple that’s £1,348.
5. Earn extra cash in your spare time
Working an extra part time job – maybe a little bar work, or serving in a shop – could easily earn you another £2,300 each, or £4,600 between you in year.
If you don’t fancy this, why not stay at home and earn extra cash by writing about the things you love to do or a subject area in which you have expertise? Freelance writing is a fun and rewarding way of earning the extra you need to save that deposit for your first home (and could even lead to a second career).A first time buyer’s deposit of £10,714 – but it doesn’t stop there!
With these five simple tips, you’ll be on course to save a deposit of more than £10,000 in just twelve months. That works out at an incredible £892 every month that you never knew you had available to save. For first time buyers, the good news doesn’t stop there.
The government has recently created the Help-to-Buy ISA. If you open one of these and deposit the maximum £200 per month in each account, the government will give you a 25% bonus on your Help-to-Buy ISA savings. After only a year, that equates to an extra £600 in your savings account.And there it is: If you’re a first time buyer or a would-be property investor, these simple tips will enable you to save a deposit of between £10,714 and £11,314 in just one year – enough for your deposit and a celebratory holiday before after completion.