Over the last few years, the Bank of Mum and Dad has played a crucial role in the property market. With house prices soaring and many young workers facing challenges getting on the housing ladder, parents handing over money to use as a house deposit have helped thousands of aspiring buyers purchase a home. Now the pandemic could affect parental support.
According to a report in the Telegraph, more than half of first-time buyers fear financial support from the Bank of Mum and Dad will be hard to come by after the pandemic. In recent months, the over-50s have become the most likely to lose their jobs, placing pressure not only on their own finances but, potentially, on their adult children if they provided support or hoped to in the future.
The pandemic’s impact on parents could have a huge effect on the property market.
The £2.14 billion role the Bank of Mum and Dad plays in the housing market
According to Legal & General, 56% of first-time buyers aged under 35 received some financial support from the Bank of Mum and Dad to help them step onto the property ladder in 2020. With the average amount provided adding up to £19,000, it’s estimated that parents helped fund home purchases worth £2.14 billion last year alone.
If you’re saving for your first home, it is possible without the support of your parents.
3 tips for saving your home deposit without the Bank of Mum and Dad
1. Pay yourself first
One of the most important steps when saving a home deposit is to make it a priority. It can seem like a daunting figure to save at first, but making regular payments to a savings account means you’re making regular steps in the right direction.
Rather than waiting until the end of the month to move spare money into your deposit fund, treat it like any other essential expense and include it in your budget. Work out how much you can reasonably afford to save each month, and set up a standing order to move this money into a separate account. By viewing your deposit savings as a bill, you can reduce the chance of being tempted to dip into the account or reduce the amount to purchase other things.
2. Make the most of government bonuses
If you’re saving for a home, a Lifetime ISA (LISA) is a great way to boost your savings.
You can save up to £4,000 into a LISA each tax year and benefit from a 25% government bonus. Maximise the account and you’ll have an extra £1,000 to put towards your first home. It’s an account that can help your savings go further and could mean you’re able to buy sooner or put down a larger deposit.
To open a LISA, you must be aged between 18 and 40. You need to be clear about what you’re saving for. If you withdraw money before you turn 60 for a purpose other than buying your first home, you will face a penalty and lose the bonus.
If you decide to open a LISA, you’ll also need to decide between a cash account or a stocks and shares account. With a Cash LISA, you’ll earn interest on your savings. A Stocks and Shares LISA offers you an opportunity to earn more on your money through investment returns, but also exposes your savings to risk as the value of investments can rise and fall. If you hope to buy your home within the next few years, a cash account will usually make more sense.
3. Calculate how much deposit you need
Setting a clear goal is important and can help keep you on track. You want this goal to reflect your homebuying plans, so you should spend some time looking at the market for the type of property you want and how much you’re likely to be able to borrow through a mortgage.
The government’s 5% mortgage guarantee scheme may mean you have to save less than you think.
Several major lenders are offering these government-backed mortgages, which means you need a deposit of just 5% of the property’s value, rather than the traditional 10%. The scheme will run until December 2022 and aims to make it easier for first-time buyers to get on to the property ladder.
While these low deposit mortgages can help you get on the property ladder sooner, keep in mind that the interest rate you pay and, therefore, the monthly repayments will be higher. If you’re in a position to put down a larger deposit or to save more, it often makes financial sense to do so.
If you’re struggling to save enough deposit or you aren’t sure if you’ll be able to borrow enough through a mortgage, there are other options to consider too.
A shared ownership property means you can buy a portion of a property, reducing your deposit and the amount you need to borrow while paying rent on the remaining share. You may also want to consider the government’s Help to Buy Equity Loan scheme, which can provide a loan of up to 20% of the property’s value, and, again, reduces the deposit and the amount you need to borrow. While useful, both these options come with drawbacks and it’s important to carefully weigh up the pros and cons first.
If you’re a first-time buyer and are looking for support during the homebuying process, we’re here for you. We can help you right from the start by securing you a mortgage in principle that can provide potential sellers with confidence, and we’ll continue to be on hand as you buy your first home. Please contact us to talk to one of our team today.
Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.
