Back in the late 1980s, the TV show “Home to Roost” portrayed a young adult returning to the family home, much to the chagrin of his father. At the time it was billed as a comedy. These days, it might be seen more as a documentary. The plight of young adults trying to get on the housing ladder has been well publicised, so here is some guidance and suggestions as to how to put together that all-important deposit and get that mortgage approval.
Look to the stock market rather than cash savings
It may seem wise to hold your housing-related savings in cash rather than risk losing them in the stock market, but the problem with cash savings (at least at the current time) is that the interest income you can earn from them may not keep pace with inflation, even if you keep your savings in a cash ISA. The stock market carries the risk of capital loss, but it also offers the potential for inflation-busting gains, which can really help to grow your deposit. This is an area in which it can be helpful to get professional advice.
Think carefully about a standard ISA versus a Lifetime ISA
Lifetime ISAs may sound appealing, in the sense that the government will top up your contributions, so you get “free money”. There is, however, no such thing as a free lunch and the price of this free money is that you have to spend it either on buying a house or on your retirement. This may seem reasonable enough if the former is exactly what you were planning on doing anyway, but what if your plans change? You can withdraw the money without the bonus or you can leave it in the Lifetime ISA to help finance your retirement but doing the former rather defeats the purpose of the Lifetime ISA and doing the latter was not what you intended (although it may be a perfectly valid goal). There is no “one-size-fits-all” answer here and the importance of getting this right is such that, again, professional advice could be very useful.
Consider whether you could benefit from a formal “Help to Buy” scheme
The Help to Buy equity loan scheme has just been extended to 2021, although the scheme is now restricted to first-time buyers. In brief, this means that if a buyer can put up a minimum 5% deposit, the government will provide up to 20% of the purchase price of a home in return for an equivalent stake in the property. While this can make it much easier to get a mortgage, again, there is no such thing as a free lunch. Help to Buy equity loans are only interest free for 5 years, after which they effectively become interest-only mortgages and the longer you take to buy the government out of its share, the more interest you will pay. Admittedly, this is true of mortgages as well, but if you choose a repayment mortgage part of your repayments will go towards reducing the outstanding balance of the loan, this is not the case with Help to Buy equity loans.
Decide whether you can be more creative with your definition of a home
If you are really desperate to get on the housing ladder but don’t see yourself being able to get a foot on the first rung any time soon, it may be time to get creative and think of options such as living on a houseboat, converting small outbuildings (such as garages and sheds) or building a tiny house. These are not necessarily easy options or ones to be taken lightly, but they can give you a place of your own while you work on saving the money for a meaningful deposit and/or making yourself an attractive candidate for a mortgage.
The value of investments and pensions and the income they produce can fall as well as rise. You may get back less than you invested.
Your home may be repossessed if you do not keep up repayments on your mortgage.