A recent report from the financial app Plum, shared exclusively with the Mirror, unveils the time needed to accumulate the typical house deposit for first-time buyers. For an individual earning £30,000 annually, saving the current average deposit of £68,154 would require approximately 11 years and four months, following the 50/30/20 budgeting rule.
Using the same rule, someone with a £25,000 income would need 12 years and eight months to reach the deposit amount, while a person earning £50,000 annually 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 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, and for those with £25,000 and £50,000 incomes, it could shorten to ten years and seven months, and seven years and three months, respectively.
However, a LISA is restricted to first-home purchases or retirement, imposing a 25% penalty on withdrawals for other purposes and limiting the property value to £450,000, potentially excluding London buyers. The actual UK deposit average may vary based on regional property prices.
Rajan Lakhani, Plum’s Head of Money, highlights the challenges of homeownership for young individuals amidst escalating house prices, living costs, and mortgage rates. He emphasizes that without a LISA, saving for a deposit could take between 11 and 14 years on the average UK salary of £37,000 annually.
Considering the impact of the 25% government bonus through a LISA, Lakhani stresses its significance in accelerating deposit savings, especially for those not receiving parental support. He advises diversifying savings beyond the LISA limit and mentions the variability in deposit requirements across the UK, encouraging individuals to adapt savings strategies to their evolving income levels.