I never really thought it would become a reality, but I have started on the path to home ownership now I’m leaving London
My girlfriend and I have been fortunate during the pandemic to have kept our jobs and to have had a warm (rented) flat in South London to call home.
We’ve been mostly comfortable with this situation, but living in London during a pandemic has forced something of a rethink. I don’t think we’re the only ones either.
One in seven Londoners wants to leave the city thanks to the pandemic, a survey conducted by the London Assembly in August 2020 found. With a population of around eight million, that’s a staggering 1.14 million people wanting out.
I’m not from London, I only moved here in 2016. I also don’t have a lot of family in the UK. This makes me pretty footloose. The GF has lived in London for longer, although she’s from Devon originally.
So, leaving London – the obvious place to go would be to head south west, where she has family and friends.
Coming to this decision together – that we would actually rather be down in that part of the world – has been something of a turning point in terms of our personal finances and goals.
Foot on the ladder
Living in London with no clear endpoint, I have always been resigned to the idea of not being a homeowner. Cobbling together a deposit for a property in the capital just seems insurmountable. It is ‘possible,’ but it would just take far too long to be a realistic choice.
Neither of us have parents who are able to give whopping great helping hands either. So, until very recently, I’ve not really thought about saving to buy a home. It’s not been worth it.
But suddenly, moving to Devon, which we’re able to do because I have a very chill, flexible employer, and the GF has a very in-demand skill as a nurse, the gamut of options has opened to us like a floodgate.
Between us we’re not quite starting from zero. The GF has around £4,000 in savings, and I have about £1,000. The reason I don’t have more is I’ve been chipping away at some old credit card debt. Until now I probably could have saved more but with no real long-term incentive, beyond topping up my pension, I haven’t really felt the need.
So, what to do to get the ball rolling?
We’re opening LISAs. That is, [L]ifetime [ISA]s. You can opt for one of two types – a stocks and shares LISA, which invests your money in financial markets, or a cash LISA, which operates more like an old-fashioned savings account with a headline interest rate.
The market for cash LISAs isn’t great at the moment, but there’s not a lot of point sticking it in the stock market when the chances are we’ll be needing the money relatively soon.
To paint a picture of how long we think it will take to save, here some official figures:
In London, the average house price is £513,997 according to the latest figures from the Office for National Statistics. In the South West, where we’re headed, that figure is £278,391. To get somewhere near a 10% deposit for that figure, we’d need about £27,000.
The LISA is actually extremely generous. You’re allowed to save up to £4,000 a year into one with the government adding in 25% of what you’ve saved up £1,000 a year. The government website explains in more detail here.
The GF and I figure if we tighten our belts properly (we haven’t really been given to thriftiness during Covid because, well, you only live once etc) we can each save around £330 a month into our LISAs – so around £3,960 each a year. Topping off the £40 difference at the end, we’ll have the full £4,000 which becomes £5,000 with the bonus.
In two years’ time, considering what we’ve started with, we should have around £26,250 before interest. Top it off a bit or wait a bit longer and we could even get to £30,000.
Which brings me to the next point…where to put the money?
As I said before, the market isn’t great at the moment for cash LISAs. The ‘best’ of the bunch is currently Moneybox which comes with a 1.11% rate on your cash, which is what we’ve chosen.
Built in is a 0.6% bonus which goes after 12 months, unfortunately, so we’ll have to see if there’s anything good on the market then and switch.
The mortgage market is a bit of a mess at the moment, especially if you’re a first-time buyer.
Before coronavirus came along you could pick up a mortgage with just a 5% deposit, although a lot of lenders pulled these deals as the economy began to tank. But now many lenders are asking for at least 20%.
Now, this is where our strategy becomes a bit of a gambit. We are essentially gambling that by 2023, some normality will have been restored, and we’ll be able to use our deposit as a 10% commitment on a loan. House prices in Devon are better than London, but if we can only get a 20% mortgage by then – £27,000 sadly (and absurdly) won’t get us very far. That being said there is evidence 10% LTV mortgages are making a comeback.
But at the moment I take the view this isn’t our fault. If in that time what we have isn’t enough, we’ll re-evaluate. The issue of deposits is one that predates the pandemic and is structural to the housing market.
If we can’t get on the ladder after that time, then it’ll be an issue with the lenders and the way the government tends to the market. Until then though, it’s up to us to prove we’re disciplined and driven to meet our savings goals.
There’s no doubt the two of us are in a fortunate position, with secure flexible employment during what is a crazy time in the world. But despite starting from a low savings base, hopefully that dream of homeownership will become a reality sooner than I ever thought possible, thanks to a bit of careful planning and a bit of parsimony.