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How to save for your first home while renting?

Embarking on a new journey to homeownership can be both exciting and exhausting. It is especially true when you balance it with renting requirements. First-time homeowners find homeownership difficult. According to stats, “the UK house prices rose in the last couple of decades. The average house price is £288,000 in 2023 from £60000 in the 1990s.”  Thus, individuals struggle to save enough with liabilities like council tax, utilities, and rental expenses.

Additionally, buying a home requires detailed research. From choosing the best residential property to mortgage, everything consumes time. Thus, if you want to save money for your first home while renting one, the blog may help.

7 financial strategies to move from renting to ownership

Every second person renting or switching rentals dreams of home ownership. It provides them stability and independence and relieves them of constantly switching rentals. However, saving money while renting is tough. However, it does not imply putting your home ownership dream on hold. Here are some approaches that may enable you to own a home by saving:

1)     Understand the house-owning costs

The first thing about home ownership is the amount you must save. Buying a home requires paying several costs. These costs involve paying initial deposit, fees plus ongoing fees associated with property ownership. Some costs include:

  • Deposit
  • Mortgage fees
  • Stamp Duty
  • Surveyor
  • Conveyance fee

Post home ownership, you may face costs like:

  • Insurance
  • Renovation
  • Council tax
  • Utility bills
  • Furniture

Knowing these costs helps you analyse your finances and plan up savings. You can begin an appropriation according to the final or expected amount to own a home.

2)     Plan out the savings

After identifying the amount you must save, check the best ways. Budgeting is one of the most acceptable ways to accomplish your goals. Analyse monthly incomings and outgoings. The incoming include income sources and outgoings, which are your monthly expenses. These may consist of important and discretionary expenses like dining out. Next, identify your savings after meeting liabilities and wants.

Check how much you must save extra to achieve your goals within 3-4 years. It may mean- re-considering income sources, seeking promotions and reducing other expenses. For example, plan up the credit card usage until you get a mortgage. Reducing card purchases may boost savings by 30% (minimum).

3)     Create a practical deposit goal

A deposit is one of the most critical parameters for an instant mortgage quote. It reduces the interest costs and repayments on the loan. Thus, begin with deposit savings while saving for the homeownership costs. It will help you complete nearly 40% of the tasks.

Most mortgage providers ask for 10% of the possessions cost as a deposit.

For example, if the property costs £350,000, you must pay at least £35000 as a deposit amount. Additionally, confirm the amount you must pay from your mortgage provider as a deposit. It will help you save a suitable amount without confusion..

4)     Have a debt repayment plan in place

You cannot achieve your home ownership goals with pending debts. Lenders require a stellar credit history, finances and income to approve a mortgage. Thus, if you plan to apply for a mortgage within a year or two, clear debts. Plan your debt repayments by analysing your credit report.

It may reveal debts like- payday loans, car loans, credit card debt, pending rent, or overdraft payments. If yes, prioritise paying high-interest debts first. It includes credit card debts, car finance, quick loans or payday loans debt.

Not everyone shares the liability to pay the debts at once. Moreover, finding quick finance with a compromised credit history is challenging. Do not worry. You can get a loan with a bad credit score for debt payments.  You may choose this unsecured loan to pay all your debts at once. You can do so by consolidating debts. It will help you pay maximum debts and plan savings further. Additionally, consolidation helps you save some money on payments.

5)     Conduct a bank account analysis

Analysing your bank statements helps you understand your expenses better. What if you pay for subscriptions that you hardly use? It is only money wastage. You can instead direct this amount towards your home ownership goals. Anyway, how small the fund you keep matters. This is especially true for big goals.

Thus, scrutinise your bank account for things like:

  • Discrepancies in the payments
  • The amount you spend the most on
  • Unused subscriptions, gas or water subscriptions
  • Insurance premiums leading to no benefits
  • Car maintenance expenses and the best ways to reduce it

Analysing aspects like these will help you dedicate more savings towards a single goal. However, never compromise the goal with critical expenses. It may include- emergency costs, rent, medical needs, groceries, and student loans.

6)     Check eligibility for home buyer schemes

The government knows owning a home as a first-timer is challenging.  Thus, you may spot several schemes addressing first-time homeowners’ requirements. These schemes may help you cover some home-buying costs. Isn’t it great?  the following schemes may help. However, you may only benefit if you meet the eligibility criteria:

a)     Shared Ownership benefits

This government-backed scheme allows you to buy a portion (25-75%) of a newly-constructed building. Additionally, you pay rent on the remaining share. It is ideal for individuals not have sufficient cash to own a house. This scheme helps you reduce your mortgage amount requirements.

b)     First homes scheme

It is the best option for someone living in England on rent. In this, 18+ individuals seeking home ownership can buy one with a mortgage half the home price.  Most individuals in the UK seeking permanent home ownership are aged 18-35. Thus, if you can relate to this, check eligibility.

7)     Maximise your LSA savings

LSA is one of the best ways to save money in high returns-saving accounts. It generally offers good interest rates on savings. The facility is ideal for long-term goals like owning a home.  In this way, you let your savings work for you.

A Lifetime Savings Account or LSA helps you save at least £4000 every tax year on your first home purchase. Additionally, LSA is free from any tax liabilities.

Bottom line

Planning and saving money for home ownership can prove challenging initially. However, detailed financial analysis, amount requirements, mortgage rates, and property clarity, eases the deal. It helps you save the right amount by planning other important expenses. It is because the homeownership planning must not coincide with regular expenses. Additionally, tapping the right home-buying schemes may help you reduce mortgage liabilities.

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