New figures released by money app Plum today explained how it would take 11 years and four months for someone with a salary of £30,000 to save £68,154
The length of time it would take you to save up the average house deposit as a first-time buyer has been revealed.
New figures released by money app Plum, revealed exclusively to the Mirror, explained how it would take 11 years and four months for someone with a salary of £30,000 to save £68,154, which is now the average deposit for a first-time buyer.
This is if they are using the 50/30/20 rule – which is where you allocate 50% of your income to your needs, 30% to wants and 20% to savings.
For someone with a £25,000 salary and using this savings rule, it would take 12 years and eight months to save £68,154. If you are earning £50,000 a year, then it would take eight years and two months to save.
However, there are ways to accelerate their savings, Plum says using a Lifetime ISA (LISA) – which gives you a 25% government bonus of up to £1,000 a year when you save the maximum yearly amount of £4,000 – would shorten the length of time saving for someone with a £30,000 salary to nine years and eight months.
For someone earning £25,000 a year, the time saving could be shortened to ten years and seven months with a LISA, or to seven years and three months for someone earning £50,000.
However, a LISA account is not for everyone. You can only use this account to buy your first home, or for retirement – if you try to access your money for any other reason, you’ll face a a 25% withdrawal penalty which not only wipes out the bonus, but also part of your original savings.
The property you’re buying also can’t be worth more than £450,000 – so this could potentially rule out people who are looking to buy in London.
Plum explains that the average UK deposit might be lower than this in reality, as it is all dependent on property prices in the area they’re looking to buy
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.
“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.”
How long will it take to save for a house deposit?
- £19,000 salary – 14 years and 11 months (12 years and 7 months with a LISA)
- £25,000 salary – 12 years and 8 months (10 years and 7 months with a LISA)
- £30,000 salary – 11 years and 4 months (9 years and 8 months with a LISA)
- £40,000 salary – 9 years and 5 months (8 years and 4 months with a LISA)
- £50,000 salary – 8 years and 2 months (7 years and 3 months with a LISA)
- £70,000 salary – 6 years and 6 months (5 years and 11 months with a LISA)
- £100,000 salary – 5 years and 1 month (4 years and 9 months with a LISA)