For parents looking to give their kids a helping hand as first-time home buyers, the fact the Help to Buy ISA is ending could spell bad news. But what are the Help to Buy ISA alternatives? From micro-savings to Lifetime ISAs and even having a selling spree, there may be a number of options to help build that deposit and get your kids on the property ladder.
Find out more about ISAs – including your ISA allowance, when to open an ISA and why put money in.
Help to Buy ISA is ending in November 2019
For kids and grandkids looking to raise a deposit to get on the property ladder, saving can feel like a monumental task – particularly as official statistics show the average UK house price in September was £234,000.
And one stepping stone for first-time buyers – the Help to Buy Isa – is set to close to new savers from the end of November 2019. Some deals are even closing for new applications before the official November 30 deadline.
Existing account holders can keep on saving into them until autumn 2029, however. The accounts also offer savers a bonus, which must be claimed by December 1, 2030.
Sam Mitchell, chief executive of online estate agent Housesimple.com, says: “The Help to Buy Isa provided a great stepping stone for first-time buyers looking to start saving. While aspiring home owners could now instead opt for the newer Lifetime Isa savings product, those serious about buying in the not too distant future will need to consider sticking to a strict savings plan.”
Help to Buy ISA alternatives
So, if you think a Help to Buy ISA might be for your kids, you’ll need to encourage them to apply for one quickly. But if thei miss the boat with a Help to Buy ISA – or you’re looking for other ways to potentially help your children build a deposit faster – here are Mitchell’s tips…
1. Encourage regular saving and set a goal
Encourage kids to break down what they need to save into more achievable goals will make it feel more realistic. Rather than just saying they need to save over £20,000, for example, aim to get them to save in bite-size chunks each month – or break it down further and save weekly. When they see their savings grow, it’s easier to keep going.
2. Get kids to embrace ‘micro-saving’
Micro-saving lets them put money away without even noticing it’s gone. Several savings apps specialise in round-ups, meaning every time they spend, the apps automatically round up to the nearest pound (or however much you want) and put it straight into their savings.
3. Cut back and put into savings and ISAs
While it can be hard to get kids to avoid needless spending, cravings for flat whites from their local coffee shop may not be the single reason they’re not yet on the property ladder, but cutting back on some spending habits could help. Use budgeting apps to see where they could be making savings. Sit down with them and look through their regular subscriptions and decide whether they are really making use of that gym membership, for example.
The good news is that cutting back doesn’t even have to mean totally missing out on life’s little luxuries either – for example, switching to a cheaper energy supplier or phone company are ‘pain free’ ways to save money.
4. Sell unwanted items on eBay
In the run-up to Christmas, get your kids to have a clear out and look to sell any of unwanted items – there are plenty of people will be browsing the internet for items to buy. An added bonus is that they’ll have less to move when they do eventually buy – and some of the cash could go towards decorating their new place.
5. Look to save on rental costs – and move them back in
When your kids move out and start renting, it can take out a huge chunk of their income. Renting on their own can make it very difficult to save for a deposit. If they could survive moving elsewhere or sharing with housemates, even if it’s for just six to 12 months, it might help them reach that final goal sooner.
Which comes to the dreaded ‘do you want to move back home’ conversation. If moving back home is an option, it could really boost the amount they are saving. It is worth discussing as a family what this means and how it would work, as well as the amount of ‘rent’ you’d expect them to contribute when they move back in. Helping with household chores is a must, as well as contributing to bills.
6. The bank of mum and dad as a ISA alternative
In addition to Mitchell’s tips, if you have some spare cash that you’d be willing to tie up in a savings account for a while, you may potentially be able to get a ‘no deposit’ mortgage.
Barclays’ ‘family springboard’ mortgage allows parents to put 10% of the property purchase price into a savings account, which is then returned after five years, with interest which tracks at a margin of 1.5% above the Bank of England base rate. In return, Barclays does not require the first-time buyer to put down a deposit – but if they miss mortgage repayments, parents may not get their full savings and interest back.
Lloyds Bank has a similar mortgage called ‘lend a hand’, where families can put down 10% of the purchase price into a savings account for three years, offering 2.5% fixed interest.
Meanwhile, like Help to Buy accounts, Lifetime ISAs also carry a Government bonus. But with Lifetime Isas, a 25% charge may apply if you withdraw money for any reason other than buying your first home or your retirement – and you must be aged 18 or over but under 40 to open an account.
Already have an ISA but want to switch accounts? Read the Wise Living guide to ISA transfers with expert advice on why you should shop around and transfer your ISA.
For more information about why the Help to Buy ISA is ending, visit the official government Help to Buy website.
For more information about the Lifetime Isa, see gov.uk/lifetime-isa.