The time required to save up for a typical house deposit as a first-time buyer has been unveiled. According to new data from financial app Plum, it would take 11 years and four months for an individual earning £30,000 annually to accumulate the current average deposit of £68,154. This estimation is based on the 50/30/20 rule, where 50% of income goes to needs, 30% to wants, and 20% to savings.
For someone with a £25,000 salary adhering to this savings strategy, saving the same deposit would take 12 years and eight months. Conversely, an individual earning £50,000 per year could achieve the target in eight years and two months.
Plum suggests that utilizing a Lifetime ISA (LISA) could expedite savings. A LISA offers a 25% government bonus, up to £1,000 annually when saving the maximum allowable £4,000 per year. With a LISA, the saving duration for a £30,000 earner could reduce to nine years and eight months, while a £25,000 earner could save in ten years and seven months, and a £50,000 earner in seven years and three months.
However, a LISA is restricted to first home purchases or retirement; withdrawing money for other purposes incurs a 25% penalty. Additionally, the property’s value cannot exceed £450,000, potentially limiting those aiming to buy in high-priced areas like London.
Rajan Lakhani, a personal finance expert at Plum, highlights the challenges in achieving home ownership due to escalating house prices, living costs, and mortgage rates. With the average UK salary at £37,000 annually, it could take between 11 and 14 years to save for a deposit without a LISA. Lakhani emphasizes the significant time-saving impact of a LISA, especially with the 25% government bonus, reducing reliance on parental support.
Furthermore, while the calculations are based on a £68,154 deposit, actual deposit requirements vary across the UK. Lenders typically seek at least a 10% deposit, with some offering 5% mortgages for specific professions such as teaching or healthcare. Lakhani advises considering potential salary increases over time to boost savings for homeownership.