How to buy your first home in a cost of living crisis

Brian McGleenon
Updated

Amid the ongoing cost of living crisis, getting a foothold on the property ladder can seem daunting. With rising inflation and increasing pressure on personal finances, aspiring first-time buyers need effective strategies to achieve their homeownership goals.

Brian Byrnes, Moneybox head of personal finance, shared key insights on Yahoo Finance Future Focus, outlining how savers can navigate these economic challenges and make progress towards buying their first home.

"There's absolutely no doubt cost of living has put pressure on people's finances," Byrnes said. However, many people have been remarkably resilient when it comes to saving and working toward their financial goals.

Moneybox has "seen thousands of people get their first keys over the course of the last couple of years", despite economic challenges.

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Byrnes emphasised that achieving financial goals remains possible even in tough times. This resilience has been especially apparent in the reduction of discretionary spending, with consumers prioritising long-term financial objectives over more immediate luxuries.

Byrnes advised first-time buyers to determine when they want to buy, how much they plan to spend, and how much they need to save for a deposit. “Once you have that, you can start thinking about which accounts can help you get there the quickest,” he said.

One of the most effective tools for many is the Lifetime ISA (LISA). An ISA is a tax-efficient way to save and invest money. ISAs protect your money from income tax, dividends, and capital gains tax.

A LISA is a government-backed savings vehicle designed to assist people in purchasing their first home.

"Savers can put in £4,000 a year, and the government will top that up by 25%, so a maximum £1,000 bonus that you can get every year," Byrnes said.

The savings can then be used toward the purchase of a home worth up to £450,000 or, alternatively, can be directed toward retirement.

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Many savers are cutting back on discretionary spending to maintain their financial goals. According to a Moneybox survey, 41% of respondents said they had reduced their discretionary spending in 2023.

"That's things like takeaways, holidays, nights out, all that sort of thing," Byrnes said, noting that over half of those surveyed had made progress toward their financial goals, despite the economic environment.

Another way to save is Moneybox's "round-ups" feature, where users can round up their spare change from purchases to the nearest pound and allocate it toward their financial goals. This kind of micro-saving can accumulate over time, bringing savers closer to their deposit target, Byrnes said.

"Unfortunately, not many people have adequate access to financial advice," Byrnes said, adding that only 8% of people receive formal financial advice.

Moneybox aims to bridge this gap through financial education and guidance, though Byrnes noted that there is a regulatory distinction between financial advice and financial guidance. The former involves personal recommendations and is heavily regulated, while the latter provides general information and tips.

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Byrnes said that the Financial Conduct Authority (FCA) and the UK Treasury are reviewing the boundary between financial advice and guidance, which could allow firms like Moneybox to offer more tailored assistance to consumers without crossing into regulated advice.

Byrnes expressed optimism about the role of artificial intelligence as a way to enhance personal finance guidance, but said regulatory barriers remain.

"AI technology can give pretty good answers to personal finance questions today, and already financial advisors are using artificial intelligence for their back-office processes, for things like customer fact-finding, for making processes more efficient, and therefore giving them more time to spend with customers," he said.

While AI-powered financial advisors in everyone's pocket may still be a few years away, Byrnes believes that the regulatory environment could eventually catch up with the rapidly developing technology.

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