Be patient when saving to buy a property
Apr 4th, 2008 | By admin | Category: property adviceIf you look at data that has been compiled over the past 25 years, house prices increase, on average (this is taking into consideration varying prices by region), by 8% per year. However, salaries only increase by, possibly, just 3% per year. So it’s not surprising that so many people would like to buy a property, but find it difficult.
Thankfully for those who are yet to get on the property ladder, property prices have begun to decline in the past six months. It’s impossible however to predict what will happen over the next six. This is because there are many external factors affecting the UK economy.
This article is going to show you why it is important to be patient even when prices are rising.
Keep on saving
The longer you wait the more deposit you can save. You might not have thought about this but, you can grow your deposit faster than house prices grow, particular in the current market conditions. This can help to offset that your salary is probably not growing in line with house rises.
The average price of a first time buy in 2007 rose to £159,494, according to the housing charity Shelter. (In the capital this rises to £260,000) This equates to a 200% rise in house prices over the last decade; with average weekly income only rising by 53% in the last 10 years.
For our example lets round the average price to £160,000. If by some very nifty accounting work and some determination you are able to save £500pm for a deposit. After a year you will have a £6,000 deposit.
House prices, on average would rise by 8%, so they have gone from £160,000 to about £173,000. This means you now only have a 3.5% deposit for your property. After another year of saving, the average property is worth £187,000 assuming that prices continue to rise at 8%, but you now have a deposit of £12,000, which equates to 6.5%. You now have enough money to start comparing mortgage deals.
If you continued saving for another four years you could save £6,000pa. If house prices continue to rise by 8% in four years, first-time-buyer prices are now around £218,000. But your deposit is now £24,000 not including any interest earnt. If you’re smart you will store your cash in a high interest savings account. Your deposit now makes up around 11% of the value of a property allowing you to get a better mortgage deal than with a 5% deposit. A bigger deposit also enables you to move quicker on a purchase if you need to.
Hold on to your pay packet
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