Saving for a house deposit on under £40,000 a year
7 min | 11 December 2023
Home ownership ranks high among financial goals for young Brits, but is it attainable on a salary of less than £40,000 a year? We share our tips for getting your first deposit together.
The average annual salary in the UK is around £33,000 – over 50% of Britons earn less than £40,000 a year.
Depending on which area of the country you choose, buying your first home may not necessarily be out of your reach on those wages – but it will require some savvy saving.
It's easy to think, if I stopped buying lattes, would I somehow be able to save up a deposit in the next six months? Or should I give up on traditional home ownership and go for an alternative way of living? Or is a surprise inheritance my only ticket to owning a home?
The path to home ownership needn’t be as dramatic (or hyperbolic) as the headlines might suggest. If you choose to make home ownership your priority, here are some tips to help you start saving, wherever you’re currently living.
Define your goals
Think about why you’re saving for a deposit. Do you want a larger home to start a family? Are you tired of relying on your landlord for necessary repairs? Can’t stand living without a cat? Or do you simply feel like every month you pay rent is another month you're not investing in your own home?
If you feel like home ownership is just the next thing you 'should' do, you might want to explore whether there’s more to that feeling or pursue another goal that’s more important to you.
With the right motivation, whether you’re saving for a home or a major holiday, you may have an easier time sticking to – and reaching – your target.
Those who like browsing estate-agent listings in their lunch hour may already know that the average house price in London is £534,265. A first-time buyer generally needs a minimum deposit of 5%, which would be around £26,700, and that's before you factor in the additional costs of purchasing and owning a home, such as legal fees, surveys and stamp duty.
If it’s the idea of home ownership that appeals, rather than a specific location, there are more affordable areas you might consider.
In the North East and North West, average prices are £163,480 and £215,648, respectively. If you put £500 away each month, you could get a £16,000 deposit together in a little over two and a half years.
Keep your mortgage eligibility in mind
You might be able to get a deposit together, but you’ll still have to qualify for a mortgage. Among other criteria such as your credit history, lenders will usually use your income to calculate what you can borrow, which is generally four to five times what you earn.
If you’re on £30,000, you might qualify for a £120,000–£150,000 mortgage – possibly enough for a home in the North East (with your £16,000 deposit) but potentially too little for a home in the North West where house prices are higher (even with a £20,000 deposit).
Take advantage of the resources available to you
Saving for a deposit might feel difficult at times, but there are schemes that can help.
If you’re interested in a new-build home, the First Homes scheme gives first-time buyers the opportunity to purchase a new home at a discount of 30–50% on its market value, subject to eligibility conditions.
You might also consider shared ownership This lets you purchase a share of the property’s value, usually 10–75%. While you pay off your share, you’ll also pay rent to the landlord based on the share of ownership they retain.
If you’re more of a DIY type, the Help to Build: Equity Loan could help you finance construction of your dream home.
You could be eligible for a Lifetime ISA
Claire Exley, head of wealth services at Nutmeg, the digital wealth manager, said: 'If you’re under 40 and saving or investing toward your first home the Lifetime ISA (LISA) is a government initiative designed to help you achieve the goal. Pay in up to a maximum of £4,000 per year and the government will boost your contribution by 25% – that’s a potential £1,000 per year from the government to help towards your dream of becoming a homeowner. If you open a cash LISA, any interest you earn is also tax free, and if you decide to invest in a stocks and shares LISA, any investment returns are free of income, dividend and capital gains tax, making the Lifetime ISA a tax efficient way to put money away for your first home.
'There are a couple of important things to consider: Do some research on house prices in your area and for the property you’re looking to buy, as a Lifetime ISA can only be used on properties valued at £450,000 or less. If you decide not to use your LISA for your first home, you can leave the money in the LISA until you turn 60, but other withdrawals will likely have a 25% government penalty.
'The other good thing about a LISA is if you are buying with a partner or a friend and it’s the first property for both of you, you can both use a LISA. That means you can both benefit from the government bonus on the money you’re saving or investing for the property.'
Cut yourself some slack
It’s easy to resolve to live with five flatmates, only ever eat rice and beans and never, under any circumstances, go out, but where’s the fun in that?
Remember, you’re saving for something long-term – it’s OK to enjoy yourself along the way.
Whether you’re saving for a modern home or a classic car, Chase's easy-access saver account lets you start saving with as little as you like.
18+, UK residents. A Chase current account is required to open a saver account.
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Disclaimer: The Hub is intended as a knowledge portal to provide information on a range of topics, including financial products. Articles may reference products and services that Chase UK does not currently offer. This article is for information only and does not constitute financial or legal advice.
As with all investing, your capital is at risk. The value of your portfolio with Nutmeg can go down as well as up, and you may get back less than you invest. A stocks and shares Lifetime ISA may not be right for everyone, and tax rules may change in the future. You must be 18–39 years old to open one. If you need to withdraw the money before you’re 60, and it’s not for the purchase of a first home up to £450,000 or a terminal illness, you’ll pay a 25% government penalty. So, you may get back less than you put in.
Compared to a pension, the Lifetime ISA is treated differently for tax purposes. You may be better off contributing to a pension.
If you choose to opt out of your workplace pension to pay into a Lifetime ISA, you may lose the benefits of the employer-matched contributions.
If you are unsure if a Lifetime ISA is the right choice for you, please seek financial advice.
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