Buying a house for most people ranks highly on the list of life’s greatest achievements and now that buying a house is arguably one of the hardest goals to accomplish, one can really see why.
It’s no secret that the house-buying journey has changed drastically over the last decade. House prices have soared, resulting in considerably larger deposits and sadly the average UK wage hasn’t been able to keep up. As a result, young buyers on a modest wage are having a much harder time working toward their ultimate goal – becoming a homeowner.
Search the internet and you’ll find a number of posts sharing “How I Bought my Home at 25”, and whilst they’re meant to encourage young millennials, as any first time buyer will tell you, each journey to home ownership is different. There is no hard and fast rule or specific method that guarantees you your dream house, however there are a number of ways that can make buying a home more of a reality than a fairy-tale.
Open an ISA
Putting money aside from your income not only aids the process of saving for that deposit, but keeping it separate from your everyday current account means you are less likely to dip into it to use the money for other things.
Lifetime ISA
There are so many different savings accounts to choose from however one has been designed specifically for hopeful future homeowners. The government recognises that saving for a house is something that many young and even older prospective buyers struggle with on the average UK wage, so the government introduced the Help to Buy ISA in 2015 and the Lifetime ISA in April 2017. The Help to Buy ISA was available to new customers up until November 30th 2019 and has now ended, whilst the Lifetime ISA is still available to new customers and currently has no end date.
The Lifetime ISA was introduced by the government to incentivise young people to save towards a home (and retirement), with a generous 25% government bonus on whatever you save, up to £4,000 per year.
How the Lifetime ISA works
The Lifetime ISA is available to anyone aged 18-39 and intended for the use of anyone buying a home for the first time or for those who wish to save towards their retirement. You can pay up to £4,000 into your Lifetime ISA each year. This means you can get a maximum bonus of £1,000 per year from the government at the end of each year if you save the yearly maximum of £4,000. For example, if you saved £20,000 into your Lifetime ISA (£4,000 per year for 5 years), you would earn a total bonus of £5,000 making your savings total - £25,000.
Pro’s
- Your savings are tax free
- 25% government bonus is useful if buying your first home – your home must be priced at £450,00 or below and can be anywhere in the UK
- No minimum monthly transfer-in
Cons
- If funds are withdrawn before the end of the 1st year or withdrawn and used for anything other than a house purchase or retirement, you will receive the 25% withdrawal penalty
- Cannot be used for a house purchase if you are already a homeowner
- Transferring to a different type of ISA will incur the 25% withdrawal penalty
Learn more about the Lifetime ISA here.
Check your credit file
Young people are becoming more and more aware of just how much their credit score affects their life when making future financial commitments. Having a good credit rating can give you access to lower interest rates on most things, including a mortgage, because creditors view you as being a lower credit risk. Plus - the better your credit file, the higher the chances of you being approved for the loan you want to secure for your mortgage. This doesn’t mean that you won’t have access to credit if your score is poor, but your chances of approval may be significantly lower and you won’t experience the benefits of lower interest rates – which is a big deal when you take into consideration the cost of a mortgage. If you are not sure what your credit file looks like, check it as soon as possible and certainly before you start applying for a mortgage. Companies like Equifax, Experian and Clear Score offer a free credit check service, however if you want a full record of your credit file, you might need to pay a monthly premium. Even if your credit file doesn’t look great, provided you’re not in a hurry to buy a property, you can work on improving your credit score so that once you are ready to make the big move, your credit file is good to go.
There are several strategies you can employ to help you on your way to home ownership and you can find more tips on some of these strategies here.
When you are in the process of making your first house purchase, it is important to be prepared, but we understand that even for smaller purchases or bills, situations can change suddenly. It’s for reasons like this, that we offer quick loans to see you through those unexpected circumstances and get you moving closer to your financial goals!
