Thursday, 25 February 2016

How to Save to Buy a House

Home ownership for first time buyers can be a daunting prospect so this is a little bit about how frugal living can help you save to buy a house, or even save to rent to buy a house! The lifestyle affords the luxury of saving more of your cash for your dream home.

 
When I first began my quest to save for a house it was 'the done thing' – we were led to believe there were 3 options –
  • get a mortgage
  • get a council house
  • find a live-in job
Initially, I opted for the live-in job. Looking back, it was possibly the best paid job I ever had – all bills, meals and car paid AND £40 a week into the bank. But at 18 you don't think about it until you need to move on and set up your own home.

And so the master plan began - only I got impatient and wanted an item that cost more than my savings, so I got a bank loan to pay for it! The loan was only £800 repayable over 12 months but getting it became a defining moment. It taught me, rightly or wrongly, that the easiest way to buy something major is to use someone else's money and pay it back over time, preferably with as little interest added on as possible. It all seemed so easy until interest rates rose to an incredible 15%, that's when things can go pear-shaped. It certainly taught many of us why we should pay more attention to financial and property-related news!

Since then, various Government initiatives have evolved and different home ownership possibilities introduced. There are affordable rent options, social housing, shared ownership and even social enterprises that incorporate housing.

Improve the art of livingGentoo Group is one such social enterprise, based in North East of England, with "a vision to improve the Art of Living."

Their work is focused around three key areas to maximise impact: people, planet and property. They allow you to find a property you like, move in and pay rent, as a tenant, but your payments can also contribute towards buying the house – no need for a huge deposit or even a mortgage!

Social enterprises help further increase your chances of getting onto the property ladder and I suspect that this route may provide solutions to those who would, otherwise, have little possibility of ever owning their own home.

Long gone are the days of my three basic options and total exclusion from the property market if you find yourself with insufficient income to qualify for a mortgage. Now we also have:
  • Help to Buy - Government backed scheme for first time buyers offering tax-free top-ups to mortgage deposit savings.
  • Shared ownership - You can buy shares worth between 50% and 75% of the market value of the property and you pay rent on the remaining share.
  • Rent to buy - 'Genie' properties are let at rates slightly above those of social tenancies, but they are still considerably below current market rents. Of course, due to their popularity they are allocated on a ‘first come, first served’ basis and on an Assured Shorthold Tenancy agreement.
  • Part exchange - A bit like trading in your old car for a bigger or better one, you could start small and then work up to your dream home.
  
Whichever route you choose, you need savings to cover your costs. Most property transactions involve some form of legal fees, possibly surveys, moving costs, initial d├ęcor, floor coverings and furnishings and then all the little things that can be overlooked, especially if you are starting from scratch. Granny's insistence on starting a 'bottom drawer' as early as possible is as relevant now as it has ever been.

Take care of the pennies, don't spend the pounds foolishly, take advantage of meaningful bargains and bank your savings safely so they can't be frittered away on 'stuff'. Try to ensure your money is attracting the best possible interest, even when rates seem ridiculously low, and be prepared to move quickly if your dream home presents itself.

A LITTLE BIT EXTRA

To help me with my own savings plan, I charted a timeline. It began with house hunting, then progressed through house viewing, surveys, moving costs and then on to legal expenses. It wasn't until all of those costs, which were several thousand pounds, could be met that I started saving for the actual house! Each month the balance grew with tax-free ISA interest, I rounded it up to the nearest full pound. Pound-rounding became quite habit-forming, so it wasn't long before I was rounding up to the nearest £5, then the nearest £10, until it eventually got to the hundreds. It all took time. Social enterprise options could definitely provide many with far quicker results and it is something I fully intend to explore further. How about you?

Feel free to ask questions, comment, get involved in the frugal forums discussions or share these posts and good luck with your personal savings goals.

5 comments:

  1. I feel bad for those starting out today, as the price of houses in some parts of the country are totally unachievable unless you have a top notch job. Our first house was 18,500 British pounds back in 1982, now that same house is probably worth well over 100,000 British pounds. I guess if you want something bad enough, you will make it happen...........

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    1. I agree! back when we bought our first house it was an old room and kitchen. Nowadays there are few left as those with sufficient incomes bought 2 at about £12,000 each and knocked them into 1, so they are now selling at £100,000+ Relocation really is the only way to find affordable property if you don't work a city job or as a professional. The gap just seems to keep on widening.

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  2. Sounds obvious but the best way to achieve your dreams is to earn more money. I did it by embarking on a lot of study to improve my qualifications which enabled me to move up the ladder in education.However,you need not chase academic qualifications. Dev eloping more skills would also increase your learning potential.I live in the south-east where there are lots of opportunities to do part-time jobs of all kinds for householders.
    My best tip for saving - which actually enabled me to save enough for a second property - is to defer spending salary increases. Put simply,if you are managing on a salary of £X a month today,why feel you have to spend the salary increase which comes tomorrow? Lock the monthly increase into a Regular Savings Account. Just leave it there to accumulate if you can.When your next increase comes,ask yourself the same question. Can I manage without this increase? If you can,tie it up in regular savings. If you need the increase ,spend it. But go on saving whatever you added monthly on the first increase.

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    Replies
    1. Well said, Lola, although it isn't always easy for everyone to have a fulltime job with decent prospects and time to improve their chances with academic studies, especially if married with children and a mortgage plus other debts hanging around their necks. Personally, I began my savings as soon as I became debt free and knew, at that point, that I could live on £4,000 a year. Best part of 10 years on and I can still live, better than ever, on my £4,000. Pretty much everything over that gets saved for future investments. Self employment means I can work as many or as few hours as I need to meet my costs but, like many self-employed people, a regular savings account is difficult to acquire with no guarantee of being able to make the minimum monthly deposits.

      Well done having 2 bought and paid for properties - mortgage freedom is what I love most, but it now looks like that is achievable through social enterprise without the years of saving. I'd like to think there was an option for early settlement but haven't looked into it that far, as there is no such enterprise near me here in SW Scotland. Maybe we should start one... we spoke about it last century. :)

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  3. Love the blog. Picked up some really nice ideas that might save me a penny or two :-)...Some of your reader might be interested in this
    How To Live For Free: The Definitive Guide Like most guide not all tips work for everyone but worth a scan (you can preview the contents) as well

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