My girlfriend and I are trying to save for a house together. Currently house prices in our area are a ridiculous £300k. The max we can get is about £220k from banks, which means somehow saving up a whopping £80k for a deposit which would take us about 8 years (and house prices are increasing faster than we're saving!) That's not to mention solicitors fees, stamp duty, the cost of actually moving, and of course furnishing the house, white goods etc. Any repairs or renovations needed on the property would be out of the question.
It all just seems impossible!! Any advice for two young people trying to get themselves a home?
First – this is a dilemma that so many young people are facing. It is really tough.
It sounds harsh, but basically the only way to save is to save. There are two sorts of savings accounts designed to help first-time buyers with Government top-ups. Free money from the government, in other words.
A Help to Buy ISA will offer first time buyers up to £3,000 free from the Government – a Lifetime ISA (LISA) could net you a higher bonus of up to £12,000. But there are strings attached to the LISA in the form of exit fees, and no wriggle room if you change your mind. There's also an age restriction on the LISA. If you’re over 40, sorry to deflate you further, but you're too old.
Here's how they work:
The Help to Buy ISA is cash only.
- It pays 3% interest, which isn’t bad in our present low-interest reality.
- The yearly max you can pay into it is £2,400 though (£3,400 in year 1), so over 8 years you’d only be able to pay in about £200 a month within this vehicle. You and your partner would both be able to get one. If you could both pay in the maximum £200 a month, this would get you to about £40k in 8 years, plus an extra £3k each from the government, if you have £1000 in savings now. Obviously, if your savings pot is already larger than that, the total would be higher.
- You’d also have no exposure to the stock market at all, and would be able to change your mind if you need to use the money for something else.
Lifetime ISAs offer you a Cash or Stocks and Shares option.
- Stocks and Shares LISAs can pimp your returns over the longer-term, but they carry more risk too.
- You're not spoilt for choice when it comes to Cash Lifetime ISAs - Skipton is currently the only place offering one (since this answer, two more Building Societies have created Cash LISAs. Take a look at Newcastle and Nottingham Building Societies!).
- If you’re looking at over 5 years before you’re ready to buy, then LISAs are a viable option.
- You can pay in up to £4,000 a year, earn a 25% bonus from the government at the end of the term, and both of you can get one.
- However, once you’ve put money in, you can’t take it out again until you’re ready to buy (which has to be at least 12 months from when you opened the LISA), or alternatively once you turn 60. If you do take the cash out for anything else, you'll have to pay a penalty. So no changing your mind.
Here’s a chart from step 2 of our Rebellious Renters Learning Path which compares Help to Buy ISAs vs Lifetime ISAs.
This learning path is worth a look for first time buyers - it's full of straightforward information, and an audio guide comparing LISAs and Help to Buy. You need to weigh up your time frames and choose the option that’s right for you.
It’s always a hard slog saving for a home, but at least you can get a little help along the way.