SAVING FOR YOUR FIRST HOME - HELP TO BUY OR LISA?
Let me start by saying I am not the greatest of savers.
Full disclosure: I'm in my 30s and renting in one of the world's most expensive cities. I have only *just* begun to think sensibly about saving for a house, which, if I stay on my current savings trajectory, I ought to be able to purchase some time around 2050. #winning.
My saving priorities for the past couple of years have fallen into two categories: travel and filmmaking. Two potentially budget-busting camps which will also be demanding a lot of financial attention in the coming 12 months as well... I digress.
Over the past year I have focused more seriously on trying to get my head around personal finance - specifically my personal finances - and I've come across a few things which seem to have stuck. Maybe they'll be of some use to you, too.
One of my big long term goals is buying my own home and there are a number of schemes on the market designed to make getting onto the property ladder marginally less painful than normal. The two creating the biggest buzz at the moment as Help to Buy and LISA.
The Help to Buy, (H2B,) scheme was introduced by the UK government as a means of boosting the confidence of first-time buyers hoping to get onto the property ladder - a trend which had slumped since the 2008 financial recession. Would-be home owners could save up to £3,000 over the financial year - April to March - and the government would give a 25% bonus at the end of this time which could be used to help pay toward a first home.
The Help to Buy scheme has a few points worth keeping in mind. For example, you will only be eligible for a government bonus if you put a minimum of £1,600 in your account and the maximum bonus you can receive over time is £3,000 - irrespective of how long the account is open for. However, if you're in a rush and need to buy fast this could be an option if you're savvy with your deposits, e.g: you can input £3,000 now and £3,000 in on 6th April 2020 and be eligible for a £2,000 bonus. Given house deposits in London are now on average an eye-watering £80,000 this won't make much of a dent but could help you pay any legal fees associated with the purchase of your first home.
In 2017 the Lifetime Individual Savings Account, (LISA,) came onto the scene and caused a furore because this one seemed to be a better offer still - you could save up to £4,000 per year and the government would still give you 25% on top as a bonus.
Now here's where it gets interesting - you have two options with the type of LISA you can go for:
The first one is a cash, or lower-risk LISA. This means the interest rate isn't great but what you save is what stays in your account. The other is aimed at the more investment-savvy and is a stocks and shares LISA. This means that the money you put in is invested giving the funds the opportunity to thrive with the market. However, this does mean your fund could decrease with market fluctuation as well. The good news is, you don't need to decide firmly up front - you can start up a cash (savings) LISA now and transfer into a stocks and shares one later down the line if you feel it's right for you.
The important thing is to just start saving. However, there are a few caveats to opening a LISA:
* You have to open the account no later than your 39th birthday and you must commit to keeping the funds you deposit in there until you either buy your first home - up to the value of £450,000 in London (yikes) - or you keep depositing into the account on a longer term basis as an additional saving to your pension which you can withdraw from age 60 but you won't get the government bonus once you turn 50.
* If you decide to withdraw the money sooner than either the aforementioned scenarios you will need to pay a fee of 25% against the amount you wish to withdraw so unless you are able to commit to depositing money and leaving it there to do its thing this may not be the savings option for you.
* At the time of going to press there are currently only three providers in the UK offering cash LISAs though you can open them all online. Some are monitored online only while others allow you to pop into a branch or call on the phone to check its status.
* You can have a LISA and an ISA - the government gives everyone an annual limit of £20,000 up to which they are entitled to save tax free. If you deposit the maximum £4,000 in your LISA you will still have up to £16,000 which you are eligible to save tax free. However, the government bonus is only applicable to the LISA.
Martin Lewis - aka the Money Saving Expert - offers a detailed breakdown of pros and cons on his website that is worth a read. I ended up opting for a cash LISA in the first instance - it's not got much in it at the moment but it's a start! Help to Buy certainly has its benefits too but I think for me the LISA has the edge as I have rather a long way to go before I will be ready to buy. Had I started saving sooner, perhaps the H2B would have been a good option. (This post isn't sponsored or affiliated with any brand, just my own research. Sadly, I am not an expert in the world of personal finance - maybe one day!)
I'd love to hear any tips you might have to help swell your savings to reach a goal that bit sooner. Feel free to share in the comments below.
Until next time, keep wondering,
Laura