A recent report by financial app Plum, shared with the Mirror, has unveiled the time it would take for a first-time buyer to accumulate the average house deposit. According to the findings, an individual with a £30,000 annual income would need 11 years and four months to save £68,154, the current typical deposit amount for first-time home purchases.
This estimation is based on the 50/30/20 budgeting rule, where 50% of income goes to necessities, 30% to discretionary spending, and 20% to savings. For someone earning £25,000, it would take 12 years and eight months to reach the deposit target, while a £50,000 earner could achieve it in eight years and two months.
To expedite savings, Plum suggests utilizing a Lifetime ISA (LISA), which offers a 25% government bonus on annual contributions up to £4,000. With a LISA, the savings duration for a £30,000 earner could decrease to nine years and eight months, and for those earning £25,000 or £50,000, it could be shortened to ten years and seven months or seven years and three months, respectively.
However, a LISA is restricted to first home purchases or retirement, with a 25% penalty on withdrawals for other purposes, potentially erasing the bonus and part of the original savings. Additionally, the property value must not exceed £450,000, potentially limiting options in high-cost areas like London.
Rajan Lakhani, Plum’s Head of Money, noted the challenges of homeownership amid rising house prices and living costs, emphasizing that without a LISA, it could take 11 to 14 years to save for a deposit. Lakhani highlighted the significant impact of a LISA’s 25% bonus, particularly for those not receiving financial support elsewhere.
He advised considering the annual LISA contribution limit of £4,000 and the varying deposit requirements set by lenders, which can range from 5% to 10% of the property value. Lakhani also encouraged leveraging potential salary growth to boost savings for future property purchases.
