17th October 2018 at 1:59pm
By Elle Tucker
Just like an 18th birthday party and a first job, buying a first home has always been a rite of passage for most of us.
We’ve all heard of the challenges for first-time buyers, but help is at hand for those who are part of the so-called ‘Generation Rent’ who have their hearts set on owning their own home.
Build a nest to build a future
Buying a property isn’t just about the urge to build a nest – it’s also about owning your own home and the opportunity to invest in a property that could grow in value for the future rather than paying out to landlords.
With house prices rising faster than average pay in many areas, and high rents making it harder to save the deposit lenders want, it isn’t a case of choosing not to ‘settle down’ in their own place but feeling that it’s hard to afford.
However, there are ways to help make your dream home a reality.
Think of your timing
If you are saving for a deposit, it’s crucial to consider how much and how long you have to save. And that has a big part to play in where you save.
Squeeze what you can from your earnings
It could be about making your money work that bit harder.
If you’re trying to make your savings grow while interest rates are low (Bank of England base rates are still under 1% in the UK), ISAs can be a great way to save thanks to the potential for growth that some offer. You don’t normally pay tax on any interest or gains you make.
Cash ISAs can be great for short-term savings goals , where you might need the money within the next five years. They pay around 1.5-2.5%.
Once you’ve saved enough – and spotted a property you like the look of – you’ll usually have instant access to your money.
However, there is a risk that the interest you receive on your savings may be lower than the rate of inflation.
Investing in your future home
Investing can offer the potential of greater returns than you’re likely to get by saving into cash, although this comes with the risk of your money falling in value and there’s no guarantee you’ll get back all the money you invested.
Saving for your first home in stocks and shares ISAs could offer a tax-efficient place for your savings and could be more appropriate for longer-term financial goals of at least five years, to weather any fluctuations in where those funds are invested.
Home help is at hand – the Help to Buy ISA
The Government have come up with an ISA to help those struggling to save for their deposit. Look out for the Help to Buy ISA, a type of cash ISA that some banks and building societies offer, this time with interest rates of around 2.5% – but with an added boost.
The real benefit of a Help to Buy ISA is the Government bonus you get on top of this when you buy your first home, as long as you meet certain conditions and don’t cash it in early. Think of it as free money to help you with taking that first step.
The bonus is a minimum of £400 (as long as you save at least £1,600) and a maximum of £3,000 which could make a real difference.
A lifetime ahead of you – one for the under 40s
Another option if you’re aged 18-40 is the Lifetime ISA, which can be used to either get a foothold on the property ladder or use for pension saving.
You can save up to £4,000 a year – the Lifetime ISA can be cash or Stocks and Shares – and benefit from a Government bonus of £1 on top of every £4 saved.
The bonus takes it up to a maximum of £5,000 a year which is a real incentive for a first-time buyer trying to save for a potentially hefty home deposit.
Of course, if it’s a Stocks and Shares ISA, its value can go down as well as up, and you could back less than you invested. For more on this, read our What is a Lifetime Isa? article.
The Bank of Mum and Dad – or gran and grandad
Supporting grown-up children and grandchildren with guidance, living costs and getting on the property ladder is becoming more common.
It’s clearly an area where people are choosing to pass on some of their savings, as The Telegraph reported recently.
Parents approaching retirement spend an average of £18,000 supporting their grown-up children, money that may be needed over a relatively short period of time.
Passing savings on is one way to help the family, but it’s important that those who do still have enough to support themselves in their retirement.
It could be an ideal time to take professional advice – you normally need to pay for this – to help make the most of your finances over what could be a 20, or 30 year retirement.
The keys to your new home
Taking that first step up the property ladder has always been challenging, and today’s first-time buyers certainly don’t have it easy.
That’s why it’s so important that you understand all your options when it comes to saving and investing and take advantage of the help on offer.
That will give you the best chance of turning the key on that first home of your own.
Visit the MoneyPlus website for loads more tips and guides.
Elle Tucker is a freelance journalist
The information here is based on our understanding in October 2018 and should not be regarded as financial advice. Your own circumstances will have an impact on tax, and tax and legislation may change. A pension and some types of ISA are an investment and their value can go down as well as up and may be worth less than was paid in.