How to get on the property ladder
Your first home may feel like it will take a long time to save for. But there are ways to get there a little bit sooner.
How much does it cost to buy your first home?
The fact is: property is expensive. So, you'll want to have as much money in the bank as possible before you start your house search.
The main cost is your deposit, which is the money you pay yourself for the property. You’ll likely need a deposit of at least 5% of the value of your future home.
The more deposit you can put down, the less money you'll need to borrow and you might find you get a lower interest rate, which means you'll pay less each month. There are now 0% deposit mortgages available, but you might find these come with higher interest rates. If you can afford to save a 5% deposit, it is likely that the mortgage will cost you less.
You also need to think about the costs of solicitors and surveys, as well as the moving and any improvements you want to make to your new home. You might also need to pay your mortgage adviser.
Thankfully, you probably won't need to pay any stamp duty. First-time buyers don't pay stamp duty in the UK unless the value of the property is £425,000 or more.
How to save for your first home
The rules of saving are simple, but that doesn’t mean they’re easy to follow:
Remember that small savings can add up to something big over the long term! But if you want to get your foot on the property ladder sooner, there are a few ways you can save faster:
- Ask for help. Whether it's a loan or early inheritance, you might find family are able to support your saving. Or you could move back in with family to bring your costs down and give yourself more to save.
- Open a lifetime ISA. Lifetime ISAs replaced Help to Buy ISAs. The UK government tops-up everything you save in a lifetime ISA by 25%. So if you save £10, the government adds an extra £2.50. You can save up to £4,000 in lifetime ISAs every tax year, meaning there's up to £1,000 a year up for grabs! Our lifetime ISA calculator can help you understand how much your lifetime ISA could be worth in the future.
- Start a side hustle. There are many ways to make a bit of extra cash outside of your job.
Take a look at our full list of first-time buyer life hacks.
How to use a lifetime ISA to buy your first home
Once you've found a home you want to buy, you simply need to let your solicitor know that you want to pay your deposit using a lifetime ISA. You'll need to fill out a form to request the money and it will be sent straight to your solicitor who will transfer your deposit and mortgage to the seller.
But before you even open a lifetime ISA, there are a few rules you need to be aware of.
Firstly, you need to be aged 18-39 (inclusive) to open one and can only pay in up to £4,000 each tax year (tax year runs April to April). You can't use lifetime ISA money to buy a home that costs more than £450,000 and can't use it for a buy-to-let mortgage (you have to live in the home you buy).
You'll also be charged a withdrawal penalty fee of 25% of everything you withdraw if:
- You take money out of your lifetime ISA within a year of opening it
- You take money out to buy anything other than your first home (the only exception to this is if you've turned 60, when you can take out as much as you like anytime without paying a penalty)
If those rules don't work for you, or you want to put more than £4,000 aside for your deposit, you could open another account, such as a stocks and shares ISA. A stocks and shares ISA spreads your money across different investments, and will go up or down in value depending on the investments you choose.
You can open a lifetime ISA and another type of ISA, but just be aware that you can only pay up to £20,000 each tax year into ISAs in total.
There are plenty of other types of ISA available for you to choose from.
Is a lifetime ISA only for first time buyers?
No, it can also be used to save for retirement. You can take your savings out when you are 60 or over. You'll pay a 25% charge if you withdraw the money or transfer it to a different ISA (not a lifetime ISA) before you are 60.
Lifetime ISA
For more information on saving your money with OneFamily, learn more about our Lifetime ISA.
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