I am 23 and want to start saving for a house deposit pretty much from scratch, with a view to buying in three to five years.
I can put aside about £200 per month and already have an emergency cash pot built up as a rainy-day fund, which is separate to this.
With rates so low on savings accounts, is it worth me considering investing to try to build the deposit quicker? I’d earn practically nothing in interest as it stands and am willing to take a bit of risk to make more money. LS
According to Halifax the average property price now stands at £273,000 – an all-time high
Angelique Ruzicka, of This is Money, replies: According to Halifax’s November House Price Index the average property price now stands at an all-time high of £272,992.
That makes the average deposit for a first-time buyers saving 10 per cent a huge £27,299 – roughly an entire year’s pre-tax median full-time salary in the UK.
That, of course, also depends on where you live – which you don’t divulge.
If you happen to live in London, where the average property price is £514,907, according to Halifax, you’d need £51,491 for a 10 per cent deposit.
These sums illustrate why first-time buyers often require some assistance from the Bank of Mum and Dad to get a deposit.
You could lower the amount you need to save by buying with a 5 per cent deposit, but be aware that this limits mortgage choices, bumps up monthly payments and leaves you at more risk of negative equity if house prices fall. You can compare mortgage rates and monthly costs with our calculator.
Building up the £27,000 deposit on the average home would take just under 11 years if saving £200 a month at the current best buy easy access savings rate of 0.75 per cent.
Investing £200 per month and getting a 7 per cent return – which is above the recent medium-term FTSE All Share average – would take eight years and nine months.
The problem with investing for a deposit is the risk that as you near your target amount, the stock market suffers a big chunk wiped out on paper.
What makes a more considerable difference to reaching the target sooner is upping your savings – and taking advantage of a Lifetime Isa if you qualify, as we explain below.
Its commendable that at a relatively young age you have already saved a rainy day fund and can put aside £200 per month. Saving more might seem impossible now, but anything extra will help, and your wages should rise over the coming years making saving easier.
If you are a tenant, perhaps you could speed up the deposit-saving process by renting a cheaper home, or if you can easily get out of your rental contract could you move back in with parents for a bit and do some serious saving?
If that’s not possible there are other options open to you, we spoke to some experts to get their views on investing for a deposit and special first-time buyer products or government help.
David Hollingworth, associate director at broker L&C Mortgages, replies: When saving for a deposit many first-time buyers will not want to take the risk that their savings pot could fall, especially when house prices have been rising so rapidly that it’s a challenge to keep up.
As a result, many will typically squirrel money away in cash savings despite the low rates on offer.
That has been helped in recent years by the introduction of the Help to Buy Isa (no longer available to new savers) and the Lifetime Isa. Both aim to help those buying their first home through a government bonus which boosts the savings by 25 per cent.
A Lifetime Isa would therefore be something worth looking at but it’s important to check eligibility requirements beforehand.
It allows up to £4,000 to be saved each year, so could result in a bonus of as much as £1,000 per annum.
The bonus is only available for the purposes of buying a first home, or when saving for retirement and savers need to have held the account for at least 12 months before they can benefit from the bonus.
There are cash and stocks and shares Lifetime Isas available. That decision will come down to your acceptance of risk and the timeframe over which you expect to save.
Those buying in the shorter term may be more concerned by the potential ups and downs of investing, but a longer timeframe could give a better chance of riding out any ups and downs. You may want to seek specialist investment advice on whether or where to invest and to understand all the risks.’
Tracey Crookes, financial planner at Quilter, adds: ‘Considering you are starting from scratch and saving around £200 per month it may be a big ask to reach this figure in five years.
It may worth looking into some of the various other initiatives available like the Lifetime Isa which enables you to put up to £4,000 in each year and the government will add a 25 per cent bonus to your savings, up to a maximum of £1,000 per year. Y
ou can hold cash or stocks and shares in your Lifetime Isa or have a combination of both.
One thing to be aware of though is that you can only withdraw your money without incurring a withdrawal charge of 25 per cent from the LISA if it’s used to buy your first home, you are aged 60 or over or are terminally ill, with less than 12 months to live.
It’s therefore reasonably restrictive but as you already have an emergency fund in place you can afford to lock your money away to achieve this bonus and achieve your dream of owning your first property as soon as possible.
Compare the best DIY investing platforms and stocks & shares Isa
Investing online is simple, cheap and can be done from your computer, tablet or phone at a time and place that suits you.
When it comes to choosing a DIY investing platform, stocks & shares Isa or a general investing account, the range of options might seem overwhelming.
Every provider has a slightly different offering, charging more or less for trading or holding shares and giving access to a different range of stocks, funds and investment trusts.
When weighing up the right one for you, it’s important to to look at the service that it offers, along with administration charges and dealing fees, plus any other extra costs.
To help you compare investment accounts, we’ve crunched the facts and pulled together a comprehensive guide to choosing the best and cheapest investing account for you.
We highlight the main players in the table below but would advise doing your own research and considering the points in our full guide linked here.
>> This is Money’s full guide to the best investing platforms and Isas
|Admin charge||Charges notes||Fund dealing||Standard share, trust, ETF dealing||Regular investing||Dividend reinvestment|
|AJ Bell YouInvest||0.25%||Max £3.50 per month for shares, trusts, ETFs.||£1.50||£9.95||£1.50||1% (Min £1.50, max £9.95)||More details|
|Charles Stanley Direct||0.35%||No platform fee on shares if a trade in that month and annual max of £240||Free||£11.50||n/a||n/a||More details|
|Fidelity||0.35% on funds||£45 fee up to £7,500. Max £45 per year for shares, trusts, ETFs||Free||£10||Free funds £1.50 shares, trusts ETFs||£1.50||More details|
|Hargreaves Lansdown||0.45%||Capped at £45 for shares, trusts, ETFs||Free||£11.95||£1.50||1% (£1 min, £10 max)||More details|
|Interactive Investor||£119.88 as £9.99 per month||£7.99 per month back in trading credit||£7.99||£7.99||Free||£0.99||More details|
|iWeb||£100 one-off||£5||£5||n/a||2%, max £5||More details|
|Freetrade||Free for standard account £3 month for Isa||Freetrade Plus with more investments is £9.99/month inc. Isa fee||No funds||Free||n/a||n/a||More details|
|Vanguard||0.15%||Only Vanguard funds||Free||Free only Vanguard ETFs||Free||n/a||More details|
|(Source: ThisisMoney.co.uk July 2021. Admin charges quoted annually, may be monthly or quarterly)|
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