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How long will it take to save for a deposit?

mortgage, deposit, saving, invest, house, home, first-time buyer

Getting your foot on the housing ladder is likely to be high on your list of financial priorities, but it can be difficult knowing how and where to start.

House prices have rocketed over the last decade, but what impact has this had on how much you need to save for a deposit and how long it will take to save?

Five tips for raising a deposit

Whether you’re saving for yourself, or helping your children, having a clear plan will help to set you on the right path:

  1. Work out how much you have and how much you can save each month.
  2. Decide how long you want to invest for and your risk tolerance, then invest your money for a better chance of inflation-beating returns.
  3. Invest regularly to benefit from pound cost averaging.
  4. Maximise your returns by investing in an ISA.
  5. Research the different mortgages available to ensure you’re on track with your goal.

House prices

Saving enough money to buy your first home isn’t a walk in the park; house prices have surged, deposit values have doubled, and mortgage regulations have got stricter.

In the decade since the financial crisis began, according to research from estate agent Savills, the average UK house price has grown 16%, with London homes surging by nearly two-thirds to £478,142.

This house price growth has had a knock-on effect on the amount Brits are forced to save for a deposit. First-time buyers need £26,224 on average for a home in the UK, whilst those looking to buy in London need to save £97,513.

But how long will it take me?

It can take first-time buyers up to a decade to save for a deposit, research from Which? Mortgage Advisers shows, which just highlights the need for savers to make their money work harder for them.

Over two-thirds need to save for over 24 months to buy a property, whilst a quarter of Brits need five-ten years to save.

This can be intimidating for those wanting to wave rented accommodation goodbye, but it’s important to remember that it’s never too early, and there’s no amount too little, to start saving – start today and the future you will thank you.

Even if you can save up for your deposit in two years, this is still a medium-term investment horizon. Knowing what you’re saving for and when you’ll need your money means you can make more financially savvy decisions to maximise your returns and reduce the amount of time it takes to save.

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By making an investment, your capital is at risk.

Whilst you may plan on keeping your deposit fund locked up in a savings account like a Cash ISA, the returns currently offered are negligible, especially with inflation running above the Bank of England’s 2% target. Without inflation-beating returns on your savings account, your money will be losing purchasing power over time.

Investing gives you a better chance of beating inflation. Of course, there’s always risk involved when you invest, but by taking the time to understand your goals and investor profile, you can maximise the returns on your money by investing for you.

Bank of Mum and Dad

Although house prices have surged, debt levels have fallen over the last ten years – the result of stricter mortgage regulations following the credit crunch. How is this possible? Well, it’s you – the Bank of Mum and Dad.

Don’t worry, you’re not alone. Around 30% of first-time buyers receive help from their parents, with a further 8% having help from another family member. In London, those that relied on their parents for financial help is 39%.  

With the average annual income for first time-buyers in the UK at £40,000 –  jumping to £64,263 in London – and debt levels decreasing, it’s little surprise Brits are relying on you to help out.

Your generosity means the number of Brits taking out 90% loan-to-value (LTV) mortgages – that’s a 5-10% deposit – has fallen from 14.1% before the financial crisis to 3.9% today. The average mortgage size is 68% LTV, according to Which?.

First-time buyers put down over £10 billion of cash in the year to March 2017, 85% more than a decade ago. Around £4.2 billion was provided by the Bank of Mum and Dad, or government saving schemes like Help to Buy in the year to March 2017.

Set to loan £6.5 billion in 2017, the Bank of Mum and Dad is on course to be the ninth biggest mortgage lender this year, research from Legal and General shows – larger than Clydesdale Bank.

Whether you’re a first-time buyer or it’s your children, saving for a deposit will take a bit of sacrifice. But if you plan carefully and are clever with your money, you can get one step closer to making your goals a reality.

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