It’s now harder than ever for police officers, staff and their families to get onto the property ladder in London, with house prices at an all-time high and continuing to rise, and risk-averse mortgage companies cautious about lending to anyone who doesn’t have a sizeable deposit.
A recent survey from Halifax put the average deposit for first-time purchasers in London at a whopping £100,000.
However, by taking a sensible approach to budgeting and leveraging the right financial products, first-time buyers who are serious about buying in the capital can see their dreams realised. We’ve put together this list of tips to help the Met’s would-be homeowners get onto the property ladder as soon as possible.
1. Stop renting
Renting, especially in London, is likely to account for the majority of your monthly spending, so if you don’t have to rent, don’t! Although it’s not the most glamourous option, moving back home or in with a family member will allow you to save a lot more of your salary, even if Mum and Dad charge you a nominal amount towards bills.
If your parents (or perhaps a member of your extended family) live a commutable distance from your station and have the space to put you up, it would be wise to work out what impact this could have on your savings. You may also be able to transfer to live at home for a while if positions are available.
2. Minimise rental costs
There are some circumstances in which renting is unavoidable. If you absolutely have to rent, there are a few things you can do to minimise your expenditure and therefore increase the amount you can save every month:
- Move into a house share if you’re currently renting alone. Although you may miss having the space and as much privacy, sharing with others is almost always significantly cheaper, and you may make some new friends. You could see if anyone you know is looking for a new housemate, or visit sites like spareroom.co.uk.
- Sub-let a spare room if you have one. Make sure you check the terms of your tenancy agreement first, and ensure your landlord’s on board. Even if they insist on managing the process, your rent should decrease if the occupancy increases.
- Relocate to a cheaper area. If you’re centrally located or in a very convenient spot for the Underground, you’re likely to be paying a premium for the location. Have a look online to see how far your money could go slightly further along your local tube line - a couple of stops could make all the difference to your savings. However, if you do relocate, make sure you take into account the change in transport costs if you’re moving between zones or away from your current commuting route.
- Downsize to a smaller property if this is an option. Living alone in a two-bed flat may be great when you have people come to stay, but you’re going to be paying for a second bedroom that’s empty the majority of the time. That’s money that could be earning interest in a savings account!
Don’t forget that saving is about compromise a lot of the time, and you’d be making changes on the understanding that it would be temporary and would help you to get on the housing ladder faster. If you had to choose between renting a two-bed flat forever or sharing for a while so you can afford to buy your own house, which would you go for?
3. Take control of your outgoings
Although renting will be your biggest cost, there are plenty of other things that drain money from your bank account every month. Ask yourself the following questions to see if there are any opportunities to save - even if it’s just £10 here and there, every little helps!
- Do you buy lunch every day? If so, you could save a significant amount every day by making your own lunch at home.
- If you have a car, do you need it? When you factor in fuel, tax, insurance, and repairs, cars can be a huge financial drain. If you don’t use your car regularly or could replace it with public transport, you could save hundreds of pounds a year.
- Are you getting the best deal on your bills? It pays to use comparison sites to make sure you’re spending as little as possible on utilities and insurance.
- Could you be more careful with your energy? Small things like turning off lights when you’re not in a room and not leaving plugs on can help you cut down your electricity bills - and it’s better for the environment!
- Are there luxuries you could swap for cheaper products? Take a look at the things you’re buying and assess whether you could live without some premium items for a while for the sake of saving up a deposit.
When you have a good idea of where your money’s going and you’ve done all you can to optimise your spending, make sure you don’t slip into old ways by setting a budget and sticking to it. Download our Budget Planner to help structure your expenditure and make more savings.
4. Buy part of a property
There are plenty of places in London that are part of shared ownership schemes, such as Homes For Londoners, an initiative set up by the Mayor of London to help low and modest-income Londoners to buy a home at an affordable price. Rather than paying for and owning the whole of a house or flat, shared ownership enables you to buy 25%-75% of the property, paying rent on the share of the home you don’t own.
This means that the deposit you need will be less, as instead of requiring a downpayment against the whole value of the property, you’ll just need enough for the share that you’re buying. For example, if you’re buying a house that’s worth £400,000, and your mortgage requires a 10% deposit, you’ll need to save £40,000. However, if you’re buying a 25% share in the property, you’ll only need a £10,000 deposit (10% of £100,000).
You’ll usually be able to increase the share of the property that you own; this is known as ‘staircasing’, and you can do it until you own 100% of the home.
Shared ownership isn’t for everyone; some people are put off by the fact they don’t own the property outright, but this middle ground between renting and buying can be a good way for Met officers to get on the ladder.
5. Buy with a partner/sibling/friend
If you have a partner and can buy with them, your combined incomes will put you in a stronger position in terms of getting a mortgage deal, and you should be able to save the deposit more quickly. However, if you’re on your own, you may want to consider buying with a friend or sibling.
This strategy is becoming increasingly popular amongst young Londoners who are career-focused, but is obviously not without its risks; people can fall out even if they’ve known each other for decades, so if you do consider going down this route, make sure you do your research and know how to protect your investment before you sign anything.
6. Help to Buy Schemes
You may have heard of Help to Buy, a range of affordable housing schemes which have been set up by the government to help more people get onto the property ladder. Here’s how they work:
- Help to Buy: Shared Ownership is a government-run shared ownership scheme that offers buyers the chance to buy between 25% and 75% of a property.
- Help to Buy: Equity Loan offers first-time buyers a loan of up to 20% of the price of a new home, meaning you’d only need a 5% deposit to be able to buy the property.
- Help to Buy: ISA (closed to new applications from midnight, 30 November 2019) - an ISA for first-time buyers that offers a government bonus of 25%. For example, if you save up to £200 a month (the maximum you’re allowed), the government will give you a bonus of £50.
In addition, London Help to Buy has been specifically created to reflect London’s high property prices by increasing the Help to Buy: Equity Loan scheme’s upper loan limit from 20% to 40% for buyers in all London boroughs.
7. Make your savings work harder
Not all savings schemes are created equally, so it’s important to do your research so that you are confident that your money is working as hard as possible.
If you are comparing savings accounts there are a lot of factors you’ll need to consider when comparing savings accounts, including:
- How much you will be able to save every month
- How much access you will need
- Interest rates
- Penalties if you take out your savings
Accounts which require high, regular payments will often reward savers with good interest rates, but these are often also relatively inflexible when it comes to access. This might not be a bad thing if you think you might be tempted to dip into your savings when you don’t really need to.
Alternatively you could consider a Lifetime ISA (LISA). LISAs are the great new way to save for a bigger deposit faster. Anyone aged between 18-39 to save up to £4,000 a year tax-free. The government will then add 25%, meaning your savings could earn up to £1,000 a year purely in bonuses. The Metfriendly LISA has been designed specifically for police officers and their families.
There’s no doubt that officers and staff face a challenge when it comes to getting on the property ladder in London, but hopefully you’ll now see that there are options available if you’re serious about saving. Make sure you do thorough research to identify the best option (or combination of options) for your particular circumstances.