Saving for a mortgage and buying a house in your twenties used to be the norm – now it’s becoming increasingly uncommon.
In fact, millennials are increasingly referred to as Generation Rent, and as of May 2016, were more likely still be living with their parents than renting or owning a house.
A greater sense of personal freedom (ease of access to international travel and higher education, as well as a much stronger focus on careers) mean that, unlike any generation that has come before, the youngest generation of adults is now taking longer to settle down, have kids and move in with a partner.
But that’s not the only issue that’s stopping them from owning a house – owning a house has increasingly become a generational issue.
While baby boomers and their children (your grandparents and parents) were spoilt by post-war housing, lower house prices and 95-100% mortgages, those born post-1985 have seen two recessions and a housing market crash. They’ve also seen house prices rise over 300% between 1997 and 2007.
On top of that, it used to be a rule of thumb that the bank would lend your parents or grandparents two to three times their annual income – and they could use that mortgage amount to buy a house. In the cases of 95% or 100% mortgages – which required a guarantor – couples without extensive amounts of savings could buy a small house and start a family, even on a modest income.
As it stands, the most affordable areas of the country cost at least six times the average salary. In major cities, like London and Manchester, you’re looking at almost 12 times that amount.
But can’t millennials just save, I hear the older generation say? We weren’t given everything – we had to work for it.
But it’s not that easy – house prices have sky rocketed, conditions to qualify for a mortgage have got a lot more stringent and, most importantly, the cost of living has gone up while the average UK salary has hardly moved since 2007.
Quite simply, Generation Rent have far less disposable income to save and a mountain to climb before they can save even the deposit to get a mortgage – deposits of £15,000 – £20,000 are pretty common. When you’re on a low income and have no credit, that amount can seem impossible to imagine having, let alone save.
(If you’d like a more in-depth analysis of why it’s so hard for millennials to get on the property ladder, see this excellent analysis by The Guardian. Be warned, it might make you a little bit angry!)
But don’t give up hope – there are still ways. Although they are a little less rare than unicorns, people in their twenties are beginning to save and buy their own houses. It’s not impossible at all – and here are a few ways that you can begin to save up for a mortgage.
Saving for a mortgage: deposit tips
The deposit is often the hardest part of getting a mortgage and, unfortunately, the hard truth is that it’s going to require a lot of dedication, determination and sacrifice to get there. Saving for a mortgage deposit up to £15,000 or £20,000 isn’t going to happen overnight, especially if you’re already spending out well over half of your wages on rent, food and travel. Unless you want to live like a monk (or you get a loan from the bank of Mum and Dad), it’s going to be quite a challenge.
However, cutting out medium sized expenses every now and again will add up quickly. Open a high-interest savings account (an ISA for instance), and transfer the money you would have spent on a night out or a meal into there once or twice a month. Instead, stay in, whack some popcorn in the microwave, buy a cheap bottle of wine and plonk yourself in front of Netflix.
You’ll spend a tenner, but you’ll save £50. Twice a month, that’s £1,200 a year in your savings and 24 less hangovers.
While saving for a mortgage, little savings like that can add up quickly. The deposit isn’t going to accumulate overnight, but by making lots of sacrifices, you can make it add up a lot quicker than you’d think. Look at tips for frugal living, trawl the internet for discounts and vouchers and it’ll add up much quicker than you’d think.
Saving for a mortgage while renting
When you’re stuck in the false economy of renting, it can be incredibly difficult to save. However, there are a few options:
Move back with your parents
Although it might feel like being a teenager again, if you can manage to wangle to live rent-free with your parents for a year and tuck away all of the money you would have spent on rent, you can easily build up a large chunk of a deposit. Plus, home cooked dinners every night!
Look into becoming a property guardian
If you can’t quite stomach the idea of moving back in with your parents, then being a property guardian is a great way to live in a great place for as little as possible. Essentially, you pay a small amount to live in a property to prevent squatters from moving in. Average rent is between £200 and £300, even in London, and you can end up living in really great spots. Plus, the £300-£500 a month you save can go right towards a deposit. (That’s a tidy £3,600 – £6,000 a year you could save!)
Protect your deposit
If you choose to – or have to – rent, make sure that you keep a tight grip on your deposit. Make sure to read all of the tenancy agreement so that you can see what is expected of you when you leave, and if you think the landlord is unfairly trying to take your money, there are lots of ways to challenge them and get your money back. Although it might seem like a lot of hassle, getting your deposit back is a great way to either put a chunk into your savings, or to prevent you from dipping into your pocket for your next property.
Look into government help
The Help to Buy scheme has been designed to help first time buyers get on the property ladder. The Help to Buy ISA pays first-time buyers a government bonus for saving towards a house. For example, if you save £200 a month, the government will add £50 a month. If you save £12,000, the government will give you an additional £3,000 as a bonus. Not bad at all.
Last of all, try to repair your credit score
Having a deposit isn’t the only thing that’s going to affect your ability to get a mortgage – your credit score is also going to play a big part. Because they’re going to be lending you huge sums of money, the banks will want to see that you’re good for it. Having a good credit score is a great way to demonstrate this. Plus, making all of the savings above will demonstrate that you lead a financially responsible lifestyle, which is what the lenders are looking for! Bonus!
For more tips on how to live frugally for saving for a mortgage, check out our other posts for lots of tips on how to save money, even when you’re abroad or renting.