Life is certainly not getting any easier for would-be first-time buyers. As house prices continue to rise, taking an initial step on the property ladder is becoming increasingly difficult.
The latest figures from the Council of Mortgage Lenders show that the average first-timer put up a deposit of 18.6% in May 2015 compared with just 15.5% a year earlier. With the average price of a first home now above £200,000, according to the Office for National Statistics, this means a typical deposit of almost £40,000 is required.
Stamp duty and fees
But the deposit is not the only expense to take into account: there is also the matter of stamp duty, not to mention the fees charged by solicitors, surveyors and mortgage lenders.
The stamp duty system was reformed last year this introduced different tax rates on different bands of a property’s price, and put an end to the “cliff-edge” effect that accompanied sudden changes in tax rates at certain values. Now, the first £125,000 is tax free, while the next £125,000 is taxed at 2%, while any portion of value between £250,000 and £925,000 is taxed at 5%. Many buyers will pay less stamp duty under the new system – for example, the bill on a £150,000 home is now £500 compared with £1,500 before last December – but it remains a significant expense.
Fees on many mortgages can add up to £1,000 or more, so it is worth checking these well in advance. Using a mortgage broker can help you find a loan with lower fees – but bear in mind that fees can often be added to the mortgage, meaning you’re borrowing more but have lower up-front costs.
Government Help to Buy
The government is trying to make it easier for people to save up for a deposit on their first home with the introduction of a Help To Buy ISA later this year. This involves the state giving a 25% top-up to any savings made into the ISA, up to a limit of £50 a month (on deposits of £200) over five years.
In total, this would mean buyers who saved £12,000 in total would end up with £15,000 to go towards their first home – but as the figures above suggest, this is far from likely to be enough to cover a whole deposit.
Boosting savings with P2P
So what alternative ways are there to help boost your savings for what is likely to be the biggest single outlay in most people’s lives? Rates on bank savings accounts and cash ISAs remain low, and while the Bank of England has recently suggested that the base rate may finally rise around the turn of the year, this is thought unlikely to filter through into significantly more generous rates for savers.
Returns are likely to be higher with stock-market investments, but they are more appropriate for longer-term holdings of five or 10 years at least. Peer-to-peer lending, on the other hand, fits the bill nicely: returns are substantially higher than on deposit accounts, although there is some extra risk to take into account.
But P2P provides reliable and predictable capital growth, and is well suited to maximising the interest you receive over the short- to medium-term. As things stand, potential first-time buyers need all the help they can get.