How to get on the property ladder at an early age
I keep hearing and reading stories that young people are no longer able to buy properties, yet all around me I know a number of young people who have bought, or are about to buy properties over the last 12 months. So how have they all done it?
Well I haven’t asked them all, chapter and verse, how they funded the purchase of their first homes, but my understanding is that they simply saved the money over a number of years when living at home with their parents, made sacrifices and then bought their first properties. I know of at least 4 people in their early to mid-twenties who have done this. Moreover, they have done it with little help from their parents, if any.
Admittedly all 4 individuals are young professionals and they are mostly graduates. Two of them bought their properties jointly with their partners. Two of them bought their properties alone in a cheaper area with minimal financial assistance from their parents.
A Lifetime ISA, LISA, is a useful way of saving to buy a property but the Help to Buy ISA is less generous. So, what is the difference between these two government schemes?
|HELP TO BUY ISA||LIFETIME ISA|
|Who can open it?||Any first-time buyer over 16||Anyone aged 18 to 39|
|Maximum yearly contribution||£2,400 (£3,400 in year one)||£4,000|
|Transfer lump sums?||No – monthly savings||Yes|
|What’s the maximum|
|£3,000 (if you contribute the maximum over four years and eight months)||£33,000 (if you contribute the maximum every year between ages 18 and 40)|
|When is the bonus paid?||On completion of your home purchase||Monthly|
|What can it be used for?||The mortgage deposit||The home deposit and mortgage deposit|
|What’s the maximum|
|£250,000 (or £450,000 in London)||£450,000|
|How soon can you use it?||Once you’ve saved over £1,600 (can be done in a minimum of three months)||After you’ve had the account for a year|
|Is there an investment|
|Yes: stocks and shares LISA||No, cash savings only|
|Can I withdraw money if I’m not buying a home?||Yes, but you don’t get the bonus||Yes, if you’re over 60. If you withdraw before then, you’ll pay a penalty|
You need to be aware that the Help To Buy ISA will no longer be available after 30 November 2019.
Help To Buy Scheme
- You need at least 5% of the sale price of your new-build flat or house as a deposit.
- The government lends you up to 20%, or 40% if you live in London, of the sale price.
- You borrow the rest (up to 75%, or 55% if you live in London) from a mortgage lender, on a repayment basis.
- The equity loan must be repaid after 25 years, or earlier if you sell your home.
- You must repay the same percentage of the proceeds of the sale as the initial equity loan (i.e. if you received an equity loan for 20% of the purchase price of your home, you must repay 20% of the proceeds of the future sale).
Essentially, the problem with the Help To Buy scheme is that it can only be used to help both first-time buyers and existing homeowners to buy new build properties. The government’s Help To Buy Equity Loan scheme is expected to be extended from 2021 to 2023 but only for first time buyers buying newly built homes. Herein lies the problem. Builders tend to over value these new build properties in the knowledge that the government’s Equity Loan Scheme is available. I have personally noticed that new-build properties are getting smaller and smaller too so you may well be paying an over-valued price to buy that first property.
The moral of the story is to save money regularly when you are still living at home with your parents, make sacrifices by resisting the urge to spend and use government financial assistance as much as possible.
If you would like advice on how to get on the property ladder at an early age, why not get in touch with me? You know it makes sense.