In the UK, we have a long-standing relationship with homeownership. However, for many, achieving a spot on the property ladder has never seemed more challenging. This article examines how long it might take to buy a home and the factors involved.
How Much Money Do You Need?
Many headlines highlight the continuous rise in house prices. According to Nutmeg’s analysis of official Land Registry data, average house prices in England have increased by 25% in the past five years. With this trend, the typical 10% deposit now amounts to around £29,316.
In pricier areas like London, Guildford, and Cambridge, first-time buyers must save over £50,000 for a 10% deposit on an average property. Conversely, in more affordable regions such as Stoke-on-Trent or Kingston Upon Hull, potential homeowners might need around £10,000.
The Challenge of Homeownership
First-time buyers utilizing their Lifetime ISA allowance may expect to wait between two to ten years to step onto the property ladder, with the average time being approximately 5.7 years. Currently, the average age of first-time buyers in the UK is 34, reflecting a six-year increase since 2007, indicating a growing gap in accessibility for younger generations.
The Benefits of a Lifetime ISA
For those looking to invest in their child’s future or for personal savings, a Lifetime ISA (LISA) is an excellent option for individuals aged 18 to 39. Contributors can save up to £4,000 each tax year and receive a government bonus of 25%, which can amount to a maximum of £1,000.
At Nutmeg, we offer a stocks and shares Lifetime ISA. The earlier you invest in a LISA, the more compounding growth you can accumulate over time, particularly if opened from birth.
After a parent or guardian sets up the account, grandparents or other family members can contribute. To make contributions, simply have the JISA account and custodian details ready, allowing for both one-off payments or regular standing orders.
Timing Your Contributions
When it comes to investing, patience is crucial. While cash savings are important for short-Term needs, investing in a stocks and shares LISA can yield higher long-term returns, albeit with some inherent volatility.
Given that a LISA is a long-term investment, starting when your grandchildren are young is ideal, as their funds cannot be accessed until they turn 18.
Control Over ISA Funds
Once a child turns 18, their LISA converts into an adult ISA, granting them full access to the funds. They can choose to retain this money in the market or withdraw it for various uses, such as higher education costs or a down payment on their first home. However, keep in mind that the child ultimately decides how to use these funds.
Considering Regular ISAs
Grandparents might also opt to use their own ISA allowance for their grandchildren. Every adult in the UK can invest up to £20,000 annually in an ISA, exempt from income tax, dividend tax, and capital gains tax on interest or returns. This allowance is in addition to any contributions made to Junior ISAs (JISAs).
One major advantage of a regular ISA is that it remains in the grandparent’s name, allowing them to determine how much to invest and when the child can access this money. Many grandparents may choose to keep these savings until their grandchild begins their career or to help fund higher education.
Strategies for Achieving Homeownership
With Nutmeg, your investments can be diversified across multiple funds based on your risk tolerance and investment goals. This strategy helps mitigate risks while pursuing potential higher returns over extended timeframes.
It’s essential to balance contributions to both a JISA and a regular ISA, providing the flexibility to use the funds for various purposes later on.
Seeking Financial Guidance
Planning for your grandchild’s future can seem daunting, but it doesn’t have to be. Nutmeg is here to simplify the investing process, allowing you to open an account with as little as £100.
If you’d like to learn more about investing through a LISA or discuss your financial goals, you can schedule a free call with a member of our team, who can provide invaluable guidance in planning for your family’s financial future.
Important Risk Warning
As with all investments, your capital is at risk. The value of your portfolio with Nutmeg may fluctuate, and you may receive less than your initial investment.
To open a Nutmeg LISA, the individual must be aged 18-39, and withdrawals cannot occur until the age of 18. Ensure you are aware of how tax treatment may vary based on individual circumstances and be prepared for potential changes in the future. If you’re unsure whether a Lifetime ISA is right for you, consider seeking independent financial advice.