The time required to save up for an average house deposit as a first-time buyer has been disclosed. Recent data shared by financial app Plum, in an exclusive report to Mirror, illustrates that it would take 11 years and four months for an individual earning £30,000 annually to accumulate £68,154, the current average deposit amount for first-time home purchasers.
This estimation is based on the 50/30/20 rule, where 50% of income is allocated to needs, 30% to wants, and 20% to savings. For someone earning £25,000, following this savings guideline would mean saving for 12 years and eight months to reach £68,154. Conversely, an individual with a £50,000 salary could save this amount in eight years and two months.
To expedite savings, Plum recommends utilizing a Lifetime ISA (LISA) that offers a 25% government bonus of up to £1,000 annually when saving the maximum £4,000 per year. With a LISA, the saving duration for a £30,000 earner could reduce to nine years and eight months, for a £25,000 earner to ten years and seven months, and for a £50,000 earner to seven years and three months.
However, it’s important to note that a LISA is restricted to first home purchase or retirement, with a 25% withdrawal penalty for other uses, potentially nullifying the bonus and part of the original savings. Additionally, the property value cannot exceed £450,000, limiting possibilities, particularly in high-cost areas like London.
Rajan Lakhani, a personal finance expert and Head of Money at Plum, emphasized the challenges young people face in achieving homeownership due to escalating house prices, increased living costs, and higher mortgage rates. He highlighted the significant impact a LISA can have on expediting deposit savings, especially without parental assistance.
Considering the average UK salary around £37,000 per year, saving for a deposit may take between 11 to 14 years without a LISA. Lakhani emphasized the need to explore other savings avenues alongside a LISA, given the annual contribution limit. He also pointed out the varying deposit requirements across the UK and the potential for salary increases to bolster savings for a dream home.