Saving for a house deposit over 2 years
Discussion
Not for me but one of my younger colleagues.
He is starting to save for a deposit on a property, ideally near where he lives now in tube zone Zone 4 - 6 (Essex end of the central line). Earns in the region of £50K plus maybe 10% as bonus.
Lives in a shared house at the moment so rent is about £750 including bills.
Aim is to set-aside a minimum of £1K/month, maybe £1,200 if he can afford it with the target of saving £30K over the next 2 years.
He asked me if there was any way to maximise his savings in that timeframe. Had to admit that I didn't know - being 25 years older my focus is more on pension planning now!
Suggested the help to buy scheme but he would prefer an older property to a new-build. He is also, (quite correctly imho), not interested in any shared ownership schemes.
Anyone got ideas I could pass on?
Thanks
I'm by no-means an expert, but other than Help-To-Buy, I don't know of any other 'schemes' for such a purpose.
That said, if he is willing to take a little risk, saving via a LISA and/or ISA will enable him to hopefully make some tax free gains to aid the saving process.
Also, in that neck of the woods, I assume he'll be needing to maximise his salary multiples on a mortgage, so I'd definitely advise spending the next two years getting his credit score up and his credit report squeaky clean; get rid of any little gremlins on there, use credit to benefit his score, etc.
That said, if he is willing to take a little risk, saving via a LISA and/or ISA will enable him to hopefully make some tax free gains to aid the saving process.
Also, in that neck of the woods, I assume he'll be needing to maximise his salary multiples on a mortgage, so I'd definitely advise spending the next two years getting his credit score up and his credit report squeaky clean; get rid of any little gremlins on there, use credit to benefit his score, etc.
There is the Help To Buy ISA for first time buyers - he wouldn’t be able to put all his savings into it but can get a 25% boost to his savings up to £3k from the government. I assume, since it’s a savings account, there would also be some small amount of interest earned too: https://www.helptobuy.gov.uk/help-to-buy-isa/how-d...
With a 2 year time frame there are no easy answers. Just tax free cash savings is the realistic best case.
I wouldn't touch the stock market for such a short period. "Average" returns would be, say, 7-8% a year. But sometimes the stock market drops 25-30% in a few days and can take 5 years to recover....
I wouldn't touch the stock market for such a short period. "Average" returns would be, say, 7-8% a year. But sometimes the stock market drops 25-30% in a few days and can take 5 years to recover....
OzzyR1 said:
Not for me but one of my younger colleagues.
He is starting to save for a deposit on a property, ideally near where he lives now in tube zone Zone 4 - 6 (Essex end of the central line). Earns in the region of £50K plus maybe 10% as bonus.
Lives in a shared house at the moment so rent is about £750 including bills.
Aim is to set-aside a minimum of £1K/month, maybe £1,200 if he can afford it with the target of saving £30K over the next 2 years.
He asked me if there was any way to maximise his savings in that timeframe. Had to admit that I didn't know - being 25 years older my focus is more on pension planning now!
Suggested the help to buy scheme but he would prefer an older property to a new-build. He is also, (quite correctly imho), not interested in any shared ownership schemes.
Anyone got ideas I could pass on?
Thanks
By a country mile rates of return and even tax efficiencies are utterly irrelevant in the face of ‘spending less’. He is starting to save for a deposit on a property, ideally near where he lives now in tube zone Zone 4 - 6 (Essex end of the central line). Earns in the region of £50K plus maybe 10% as bonus.
Lives in a shared house at the moment so rent is about £750 including bills.
Aim is to set-aside a minimum of £1K/month, maybe £1,200 if he can afford it with the target of saving £30K over the next 2 years.
He asked me if there was any way to maximise his savings in that timeframe. Had to admit that I didn't know - being 25 years older my focus is more on pension planning now!
Suggested the help to buy scheme but he would prefer an older property to a new-build. He is also, (quite correctly imho), not interested in any shared ownership schemes.
Anyone got ideas I could pass on?
Thanks
Finding an extra 1% on the fund as it builds from zero to £30k over two years is knocked straight into irrelevance by just opting to not go out one evening.
Flatshare saves a lot on paper but it’s nemisis is that you are with 2 or 3 mates and you tend to spend far more going out or ordering in than when you eventually live in your own, stay in more and cook more etc.
The real focus has to be trimming the fat and mainting the cuts from your lifestyle at that age.
In really simple perspective, 1% on that £1000/month is the equivalent of 2 fewer pints, or given its Essex, a cocktail.
Of course, don’t throw away interest returns and make sure the money is where it’s getting a fair rate and even the tax element adds up a little but focusing on those two elements will completely ignore the elephant in the room which is curbing lifestyle spending and ensuring that your mates around you don’t overly influence your spending decisions.
Muncher said:
On that level of income he should be looking to save £30k in a year.
That'd be difficult surely. Assuming 55k (best case as described), that's 39,915.88 take home.
With 9k rent and bills, that's 30,915.88.
So, yes, assuming he doesn't eat, go out, have a car, commute etc, it's possible to save 30k, though he'd probably die from boredom/malnutrition first.
yajeed said:
That'd be difficult surely.
Assuming 55k (best case as described), that's 39,915.88 take home.
With 9k rent and bills, that's 30,915.88.
So, yes, assuming he doesn't eat, go out, have a car, commute etc, it's possible to save 30k, though he'd probably die from boredom/malnutrition first.
A true Yorkshireman could do it. But there always has to be a compromise. 2 years to save £30k is still ambitious and will take discipline. Assuming 55k (best case as described), that's 39,915.88 take home.
With 9k rent and bills, that's 30,915.88.
So, yes, assuming he doesn't eat, go out, have a car, commute etc, it's possible to save 30k, though he'd probably die from boredom/malnutrition first.
The real hurdle will be when he realises that once he has bought the property that 2 year period of frugal lifestyle sacrifices is actually now his new and permanent lifestyle and that it’ll be nearly 10 years before he wakes up one morning and see the absolutely monumental gulf between him and his friends who made the sacrifice and those who carried on spending and renting and have become massive Corbyn fans desperately wanting their parents to die.
DonkeyApple said:
A true Yorkshireman could do it.
Maybe but as a yorkshireman, I can confirm that I was beaten by a southerner in terms of reducing spend whilst at university. He ate mainly scraps from everyone else and a core diet of tinned tomatoes and rice. Mind you, that was because he blew his grant on hifi equipment in the first week of term..... every term. Sounded good though ;-)
yajeed said:
DonkeyApple said:
A true Yorkshireman could do it.
Maybe but as a yorkshireman, I can confirm that I was beaten by a southerner in terms of reducing spend whilst at university. He ate mainly scraps from everyone else and a core diet of tinned tomatoes and rice. Mind you, that was because he blew his grant on hifi equipment in the first week of term..... every term. Sounded good though ;-)
yajeed said:
DonkeyApple said:
As a Yorkshireman I’ll wager you would take your music to his to play it and ‘borrow’ some toilet roll while there?
And of course all that music listening wouldn't be the same without a snack/drink to go with it!
It is very true that any major gains are going to come from trimming outgoings - which will eclipse any small gains or tax efficiencies he may make.
He needs to save 1250 a month to reach 30k in 2 years. On 50k, after tax & NI, that's about 37k, so 3.1k a month. After rent & bills of 750, he's left with just over 2350.
He'll have 1100 left once he's put the money into savings. Seems easy enough? 275 a week to live on doesn't sound too restrictive. Certainly not when, as DA points out, the rewards will be significant.
The 10k of possible bonus cash (7k net) can be used to cover his purchase costs, with some left over for furnishings.
He needs to save 1250 a month to reach 30k in 2 years. On 50k, after tax & NI, that's about 37k, so 3.1k a month. After rent & bills of 750, he's left with just over 2350.
He'll have 1100 left once he's put the money into savings. Seems easy enough? 275 a week to live on doesn't sound too restrictive. Certainly not when, as DA points out, the rewards will be significant.
The 10k of possible bonus cash (7k net) can be used to cover his purchase costs, with some left over for furnishings.
Obviously cutting down outgoings is the major thing. As said - it's all well and good finding the best interest rate but it's a drop in the ocean if he's going out on the piss or doing drugs or using prostitutes all the time (I'm not suggesting that he is doing any of those things!)
Apart from that, a Help to Buy ISA or LISA seems to make sense. You can get the bonus on any home that meets criteria like the price limit and it sounds like he can easily put aside the £4K per year that you can put in a LISA or £200/month that you can put in a Help to Buy ISA. Do that and put aside more on top at the best interest rate he can get.
Get him to read up on them both and decide which one meets his needs best. If he wants a cash ISA, he'll get a better interest rate on the HtB ISA and no penalty for if he wants to withdraw the cash for something else.
I think in London you can get the bonus on a house costing up to £450k, £250k elsewhere.
There are plenty of sites that sum up the criteria better than I can though
Apart from that, a Help to Buy ISA or LISA seems to make sense. You can get the bonus on any home that meets criteria like the price limit and it sounds like he can easily put aside the £4K per year that you can put in a LISA or £200/month that you can put in a Help to Buy ISA. Do that and put aside more on top at the best interest rate he can get.
Get him to read up on them both and decide which one meets his needs best. If he wants a cash ISA, he'll get a better interest rate on the HtB ISA and no penalty for if he wants to withdraw the cash for something else.
I think in London you can get the bonus on a house costing up to £450k, £250k elsewhere.
There are plenty of sites that sum up the criteria better than I can though
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