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Upfront costs for first-time buyers keep rising

People hoping to buy their first home in England now need to save about £16,850 upfront. According to calculations by financial information service Moneyfacts, the figure is based on a 5% deposit on an average £272,000 home, plus moving and legal costs.

BBC Business said the Your First Home scheme announced on Saturday is intended to help first-time buyers in England enter the market with a smaller deposit. Even so, current prices still require buyers to build up a substantial cash buffer before taking out a mortgage.

Key savings tools and the risks to watch

Experts say the most basic step is to set up an automatic transfer into a savings account as soon as wages are paid. Which account is best depends on a person’s income pattern, how quickly they may need access to the money and how long they can leave the savings untouched.

  • Some high-interest accounts require customers to hold a current account with the same bank.
  • For those without emergency savings, easy-access accounts offer a more flexible option.

The LISA offers a state bonus, but comes with limits

Under the Lifetime ISA (LISA), savers can put away up to £4,000 a year and the government adds a 25% bonus. That means using the full annual allowance would bring a £1,000 public contribution into the account.

However, money in the account can only be used for a first home worth no more than £450,000, a threshold that has not changed since 2017. Withdrawals for other reasons, or before age 60 unless in exceptional cases such as serious illness, face a penalty and account holders can end up getting back less than they paid in. Ministers are said to be working on a new First Time Buyer ISA instead of the LISA, although details of how the system would work have not yet been confirmed.

Starting early means smaller monthly savings can still add up

The effect of compound returns means starting to save for a home early can significantly reduce the monthly cost. In an example given by expert Anna Bowes, someone saving £50 a month at age 20, assuming an annual return of 5%, could have about £41,000 by the time they turn 50. Someone starting 10 years later would need to put aside more than £101 a month to reach the same goal.

Low-deposit mortgage options are spreading

Some lenders are now offering mortgage products with very low deposits, or even deposits close to zero. According to David Hollingworth of L&C, some products start at a deposit of £5,000, with buyers able to borrow up to 98% or 99% of the property price.

Even so, these products may not be the best option for every buyer and the application rules are not open to everyone. Meanwhile, a Nationwide Building Society survey found that more than half of parents who charge rent to their adult children are putting some or all of that money towards their children’s savings for a home purchase.

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