If you have recently moved into a new home or are weighing up a new rental property against taking the leap and buying your next home, you may find that monthly costs are the factor to help you make the decision…
Perhaps surprisingly, renting a home is more expensive, on average, than buying, According to the research from Santander, owning a home is cheaper than renting in all areas of the UK, and on average, homeowners could be saving as much as £2,268 per year; but only once the hurdle of saving for a deposit and going through the homebuying process is behind them.
So, how can you get to that position?
There are a few methods to work toward buying a home and saving money in the long-term. These include:
Minimising your living costs
The less you spend during the course of everyday life, while saving for a deposit, the more you will be able to contribute to savings each month. Therefore, minimising the amount you are spending on rent and bills will help you to save for your home deposit in a much shorter timeframe. Options for reducing your monthly outgoings might include:
- Moving back in with your parents: If you can live with family and enjoy reduced, or shared bills, you will find that you have more disposable income each month which can be put straight into your deposit savings.
- Rent in a cheaper area until you can afford to buy: Lower rent means more money to put toward your deposit. You can get a comprehensive overview of the average cost of renting in different areas of London, from the London rents map.
- Shop around for cost-effective utilities: If you can’t save money on your rent, you might want to consider whether you can reduce your outgoings by reducing your bills. There are a range of online comparison sites where you can see if other providers are offering cheaper tariffs and how much you could save by switching.
- Create a budget (and stick to it): If you have a regular income, it may be easier to save if you decide how much you will put away each month and keep the amount consistent. This will allow you to plan your savings around your usual expenditure and will ensure that you are putting away an affordable amount.
Use the right products
If you are aged 18-39, a Lifetime ISA (Individual Savings Account) could help you to save your home deposit faster. Lifetime ISAs have an annual deposit limit of £4,000 per year and attract a government bonus which is equal to 25% of the previous year’s deposits. That means you could save a total of £5,000 per year, and that’s before interest!
If you can save more than £4,000 per year, you could continue making deposits into an Adult ISA. Although your Lifetime ISA limit forms part of the Annual ISA Allowance of £20,000, so your other ISAs are subject to a £16,000 annual deposit limit.
There are two main types of ISA; Cash and Stocks & Shares. A Stocks & Shares ISA enables you to invest your deposits, giving you control over the level of risk and type of fund you put your money into. However, due to the natural risks associated with investing, Stocks & Shares may not be the most suitable for short-term savings, such as home deposits. Stocks & Shares are better suited to long-term goals, where there is time to recover from the usual stock market wobbles, with the aim of seeing overall growth.
For short-term goals; i.e. those which will come to fruition within five years, it may be more suitable to use a Cash option. This is due to the minimised risk of not investing your deposits. The value of a Cash ISA cannot fall unexpectedly, however, money held in a Cash account for too long will fail to keep up with inflation and will lose value in real terms.
Budget for additional costs of buying a home
The homebuying process involves much more than simply putting down a deposit and moving in. You also need to consider the costs of:
- Conveyors/solicitors fees: these can amount to more than £1,000 once the homebuying process is complete.
- Stamp Duty: Stamp Duty is a tax due when buying properties. For first-time buyers, no Stamp Duty is due on the first £300,000 of homes costing less than £500,000.
- Valuation and Surveyor’s fees: Your mortgage lender will need to assess the value of the home you are buying to verify the amount you have applied to borrow; some lenders may charge an additional fee for this service. It is also prudent to hire a surveyor to inspect the property before buying it, as they will be able to identify any major issues and warn you of any repairs you may need to carry out.
- The moving process: They might seem like small costs compared to the deposit you have parted with and the fees charged by professionals, but you will also need to factor in the costs of moving materials, any vehicles or labour you will be using and a potential loss of income if you need to take time off work to move home.
If you are struggling to find a way to make buying your first house seem achievable, or if your children or grandchildren are having difficulties getting onto the property ladder, why not get in touch to see how financial advice could help.
For further information, please get in touch with us on 0207 808 4120.