Today we’re going to go over the options for saving for a house here in the UK going into 2021. More and more people are renting rather than buying property, or going into shared ownership agreements just to get on the property ladder. Less people have enough savings to walk into a bank and have a meeting with a mortgage advisor and given the current economic situation with a lot of mortgage lenders asking for 15% of the total value of the property as a down payment pushes peoples dreams further away.
Where To Start
So you’re looking at saving for a house, maybe you have £5, maybe you have £10,000, depending on your personal circumstances and where you are looking to buy property will decide how much you have saved up or the local value of the housing market. But realistically if you’re living in London then the chances are your earning more money, if you’re living in Cornwall you’re probably earning less, and the local value and local economy tends to match people’s incomes.
When I was looking to start saving our spare cash for a deposit for a house I was looking into high interest savings accounts, however in the UK there is a high possibility that banks will be offering negative interest savings accounts. What does that mean? If your interest rate with your bank is 0.75% then over the year they will increase your savings by 0.75%. If you end up with a negative interest rate then it actually means that it flips the other way around and you’ll be paying the bank a fee just for saving with them, what? So this basically is used as a way to stimulate the economy by making you spend your money rather than it being in your savings account, so what are your options in the UK when it comes to saving up a deposit?
Individual Savings Accounts (ISA)
In the UK we have access to a type of savings account called an Individual Savings Account or ISA. Many banks and building societies will offer different types of ISA and if you’ve been keeping up with deposit savings schemes then you would have heard of the Help to Buy ISA. The Help to Buy ISA is no longer available in the UK as of 30 November 2019 and it was pretty rubbish anyway, the maximum you could save per month was £200 with a 25% bonus (£50) and a maximum of £3,000 from the government. When they closed these options to people looking to open deposit savings accounts the government created the Lifetime ISA or LISA.
Lifetime ISA (LISA)
Lifetime ISAs come in two forms:
Cash Lifetime ISA – This account allows you to save up to £4,000 per tax year and you get a 25% government bonus for everything you deposit into your LISA, this means per tax year you can get a free government bonus of up to £1,000. The tax year runs April to April so the 2020/21 tax year finishes in the last week of March and the 2021/22 tax year starts in the first week of April 2021. Between these dates everything you deposit will get the bonus and it is paid out every month, so you don’t need to wait until the end of your 3 or 5 year deposits before you see the bonus, it’s all added in real time as you save.
Stocks & Shares Lifetime ISA – This is the same as a Cash LISA however everything you deposit and the government bonus added on top is invested into the stock market in order to slowly grow over time. This is an option for people who want to save up over a longer period of time and also means that everything you deposit is at risk, therefore if you choose a Stocks & Shares LISA then you should be leaving your deposits invested for at least 5 years to ride out the ups and downs of the stock market.
Need To Knows About a LISA Account
Moneybox is an app that allows you to open either a Cash LISA or a Stocks & Shares LISA and is currently the provider I use for saving for a deposit, and if i’m being honest, I love it. There are no fees for a Cash LISA and they have a really neat and easy to use app that allows anyone to open a Cash LISA and start saving. It’s my personal recommendation.
Nutmeg only provides a Stocks & Shares LISA which is in the end why I didn’t use them as my LISA provider, but that doesn’t mean it won’t fit your needs. Nutmeg also has a really neat app and allows you to choose where your funds are invested. they are one of the providers letting users invest in socially responsible and economically beneficial funds across markets. So you can save for a home and invest in a brighter future, give them a look.
I hope you found this helpful in your journey towards becoming a home owner. I know that i’m grateful for everyone that has given me pointers along the way and the best way to start is be smart with where you put your money, and get any free bonuses that come your way! Thanks for reading.