Saving to buy a property is tricky – even when your job is as a money expert. I am a personal finance analyst by day, but this doesn’t mean that saving to buy a home has been a piece of cake.
Far from it. I’ve been making a concerted effort to save for my first home for the best part of six years now. The trouble is life often throws curveballs, which have left many finely tuned plans in tatters.
One of those unexpected life events was becoming a father at aged 25. Money which would have otherwise been funelled into my house deposit fund was used to foot child rearing costs – not least nursery fees.
The second was splitting up with my daughter’s mother. We had planned on buying a house together, so a plan for two became a plan for one, effectively doubling the financial burden. The Bank of Mum is not an option for me, so deposit building efforts have been done on my own dime.
So here is my roadmap to home ownership. It’s not a magic bullet but it’s working for me. In recent years things seem to be going to plan (*touches wood*).
The first step is working out how much you’ll need for a deposit. I calculated that I would need somewhere between £35,000-£40,000 to buy a home that suits my needs – with ample space for my little one to run around – but one that I can afford.
The next step was to get a grip on my finances and to work out how much I could realistically save each month. Thankfully, I didn’t have outstanding debts other than my student loan – which doesn’t affect your credit rating in the same way other debts do. After I had paid rent, utility bills, council tax and my mobile phone bill I worked out I could afford to save around £200 a month.
I made sure there was enough wiggle room to have a decent quality of life – to meet up with friends and loved ones and go on the odd holiday.
This wiggle room means that my savings levels fluctuate each month, but it means I don’t crash and burn. I can still able to save while living my life. Keeping it realistic means I can keep going.
Making use of government schemes
I’m in a privileged position to be ‘in the know’ of various schemes and initiatives aimed to help people like me onto the property ladder.
My property saving journey started by contributing to a Help to Buy ISA, the Government sponsored savings account which launched in December 2015 to give first time buyers a leg up onto the property ladder. It offers a 25% boost, a maximum bonus of £3,000 on savings made towards buying your property, as long it was worth up to £250,000. (There was a higher price limit of £450,000 in London).
Aside from the bonus, the rate of interest applied to the savings rate was pretty tasty at the time. At one point, I received 4% interest on my Help to Buy ISA savings at time when many savings rates were below 1%.
But perhaps the biggest draw of the account to me was the ability to make withdrawals at any time, and for any reason, and still get to keep the interest earned on your savings – though not the bonus.
This feature proved to be a Godsend when managing my finances at the earlier stages of parenthood. Some of the cash originally set aside to buy a house was used to part fund a buggy for my little angel.
I also invest through a Lifetime ISA, the spiritual successor to the Help to Buy Isa, as the scheme also applies a 25p bonus from the government for every £1 saved. But you can contribute more to a Lifetime ISA – up to £4,000 every year until you reach 50 – meaning the maximum Government bonus is £32,000 on savings of £128,000. To get the bonus, you’ll need to be buying a home for no more than £450,000, which works for my circumstances.
But there’s a catch: a 25% charge is levied on cash or assets withdrawn from a Lifetime Isa if they’re not used for your first foray onto the housing ladder or if you’re not aged 60-plus (as your pension) or are not terminally ill with less than a year to live. The penalty is levied after your bonus is paid, which means you’d lose some of your savings and get back less than you invested.
This doesn’t really phase me as the penalty removes temptation to dip into the pot to use the cash for something else. I also regularly invest in a separate stocks and shares ISA for general wealth generation and skim off the top when my rainy-day fund dwindles.
I contributed to both pots for a time. I viewed the Help to Buy Isa as a separate pot for my everyday savings or a ‘spill over’ account after I had maxed out the £4,000 yearly Lifetime Isa allowance.
But Help to Buy ISA savings rates have plunged significantly since the it closed to new accounts in 2019. Like many Help to ISA accounts, mine is dormant, with only a modest amount in it after funnelling most of the cash into my Lifetime Isa, as well as a savings account that’s offering a more attractive rate of interest.
I am agonisingly close to reaching my financial target. After six years I plan on finally gripping onto the first rung of the property ladder in just over a year’s time. Fingers crossed!
For now, I’m focused on the final push. This involves further tightening my belt financially to squirrel more cash into savings where I can. I’ve also taken risk off the table when it comes to my investments.
Last year was a brutal one for my portfolio, which was at one stage down by 15%. Thankfully, performance has picked up since then, and I’ve actively disinvested to protect my savings from the up and down nature of the stock market which is only suitable for long-term investing (typically five plus-years). Admittedly, I’m still holding onto some of the biggest losers in hope that their performance will turn a corner. In any case, the 25% government top-up has more than compensated for the performance downturn.
My final consideration is affordability. Various house price indices suggest that while the decade long house price growth party is seemingly coming to an end, house prices remain eye wateringly high. And mortgage affordability is even more tricky as a single person. I won’t have the benefit of an extra income from a significant other to rely on, so I have to afford the repayments by myself at a time when mortgage rates have risen to levels not seen since the financial crisis. Add to this the ongoing cost-of-living crisis which continues to weigh on my finances.
I can’t make the numbers work right now to get onto the property ladder, and rather than stretching too much now, it is more financially prudent to wait until I’m a bit more comfortable financially to buy.
In the meantime, my focus is to follow my roadmap – while praying that the much-touted fall in property prices comes to fruition.
Myron Jobson is Senior Personal Finance Analyst at interactive investor.