Exact amount of time it will take for you save for a home | Personal Finance | Finance
The time it takes to save for the average first-time buyer’s house deposit has been revealed.
Fresh data from money app Plum suggests that someone earning £30,000 would need 11 years and four months to save £68,154, the current average deposit for a first-time buyer. This estimate is based on the 50/30/20 rule, where 50% of income goes to necessities, 30% to wants, and 20% to savings. For someone earning £25,000 and following this savings rule, it would take 12 years and eight months to save £68,154.
If you’re earning £50,000 annually, then it would take eight years and two months to save. However, Plum suggests ways to accelerate these savings. Using a Lifetime ISA (LISA) – which offers a 25% government bonus of up to £1,000 per year when you save the maximum annual amount of £4,000 – could reduce the saving period for someone with a £30,000 salary to nine years and eight months, the Mirror reports.
For someone earning £25,000 annually, the saving time could be reduced to ten years and seven months with a LISA, or to seven years and three months for someone earning £50,000.
LISA Limitations
However, a LISA account isn’t for everyone. This account can only be used to buy your first home or for retirement – if you try to access your funds for any other reason, you’ll face a 25% withdrawal penalty which not only wipes out the bonus, but also some of your original savings.
The property you’re buying also cannot be worth more than £450,000 – which could potentially rule out those looking to buy in London.
Plum points out that the typical UK deposit might actually be lower in practice, as it entirely depends on house prices in the specific area where buyers are looking.
Rajan Lakhani, personal finance expert and Head of Money at Plum, said: “Home ownership is something many young people aspire to, but it’s becoming increasingly difficult due to rising house prices, increased cost of living and relatively higher mortgage rates.”
How long it takes to save a deposit without a LISA
“The average UK salary now sits at around £37,000 per year, meaning it could take someone between 11 and 14 years to save for a deposit without the help of a LISA.
“However, looking at the results, you can see that opening a Lifetime ISA can significantly reduce the amount of time it will take for you to save a deposit, showing the major impact it can make given the Government bonus of 25%, especially if people aren’t getting help from the Bank of Mum and Dad.
“But bear in mind you can only contribute a maximum of £4,000 per tax year to your LISA, which would then be £5,000 if you include the Government bonus. You would need to put the rest of your money into another account, for example, a high-interest savings account or investment account.
“It’s also worth bearing in mind that these calculations are for a £68,154 deposit, but the deposit amount required to buy a home varies widely across the UK and depends on what level of deposit your lender asks for. Some lenders will usually ask for at least 10% but some even offer a 5% mortgage for those in certain professions like teaching or healthcare.
“It’s also important to consider that people’s salaries are likely to increase in this time frame, so the more you earn, the more you can increase the money you set aside for your dream home.”
