Saving for a deposit on a house is by no means an easy feat, especially when you consider that the average UK house price is now £228,000 according to figures from the Office of National Statistics and realistically you should be looking for a deposit of at least 10%.
Even if you are looking to buy outside of London and the South East of England – where the property market has a life of its own – the average cost of a house is still £183,000 and so will still require a hefty deposit.
So how long will it take to save for a deposit on your first home? Some figures suggest that it could take as long as 30 years for cash-strapped families to get together the large deposit needed to get a foothold on the property ladder.
This means that many families actually have little chance, at best, of ever owning their own home.
This is a situation that has led many families into living in rented accommodation and this, in turn, has led to domestic rents rocketing to an all-time high in the UK, a problem that has been exacerbated by the fact that the lettings industry is completely unregulated bar a voluntary code of conduct.
And anyone looking to rent for the first time could also have to pay a sizeable upfront fee, once the first month’s down payment of rent has been factored in alongside deposits and letting agency administration fees.
How the 30 year savings figures add up
Low to middle income families are those that bring in between £12,000 and £42,000 per year and the study by the Resolution Foundation think-tank worked on an average low income family bringing home £18,600 per month.
It was then assumed that this family would be able to put by 5% of their income to save for a deposit on a £125,000 home – which is considerably less than the national average.
This adds up to a saving of £930 per year, meaning that it would take 31 years for them to save £28,750 or a 23% deposit to put down against a mortgage.
Even if we look at a more modest deposit of £10,000, this would still take around 12 years, during which time property prices may have risen even further, meaning that buying a house could always be just out of reach.
Getting that deposit
Although this looks like a particularly gloomy outlook, things could change to make getting your first house easier. For instance, house prices could drop – as they are right now – and, as the economy improves, lenders may loosen their criteria and offer mortgages with lower deposits.
However, if you are looking to save for a deposit you should start building up your nest egg as soon as possible, putting aside as much as possible each month and placing it into a suitable savings account that not only offers a good rate of interest but is also right for your circumstances.
And with the amount of savings accounts currently on the market shown by sites such as Moneysupermarket.com, from easy access to fixed rate ISAs, you should make sure that you do your homework and maybe even seek professional financial advice before making a decision on the best way to save.