With housing prices at record levels, many of today’s young people have no ambition to own their own home. For example, Jamie (25) states: “My generation is a rental generation. If it wasn’t for the help of my mum and stepdad, I would never be able to dream of owning my own home.”
The lucky ones have generous parents or grandparents who want to help them save a deposit towards their first home.
We wise old owls know that the longer you invest money, the more it will grow into a fund to buy property, cover tough times or secure your retirement. But most young people seem to think they are immortal, and feel no need to save for the future.
In an attempt to encourage young people to save, the government has launched a series of confusing options designed to lock the money in for its intended purpose, and to discourage them from being foolish and blowing their savings on sex, drugs and rock ‘n’ roll.
Here, we explain the options:
The new Lifetime ISA (LISA) is a tax-free savings account for 18 to 39-year-olds to save up to £4,000 per year. After the first 12 months, the government will add a bonus of £1 for every £4 saved, up to a maximum of £1,000 a year.
The money can be used as the deposit to buy a first home for up to £450,000, or after age 60 as a retirement fund. If the money is withdrawn for any other reason, savers still get the bonus and interest but 25% of the amount withdrawn will be deducted as a penalty.
We think a LISA might be useful to save for a property deposit, short-term, over 5 to 10 years. However, not many providers are offering them yet, as there is a debate about whether or not it will catch on. So far, you can only open a stocks and shares LISA at Transact, Nutmeg, Hargreaves Lansdown and the Share Centre, while Skipton Building Society plans to launch the first-ever cash LISA in June.
Help to Buy ISA
A Help to Buy ISA can be opened at age 16. You can save £1,200 in the first month, and £200 every month after that. For first-time buyers, the government will add a bonus of 25%, up to £3,000 in total or £6,000 for a couple. The bonus becomes payable on completion.
The purchase price of the property is capped at £450,000 inside London, and £250,000 everywhere else.
Money can be withdrawn for any reason without penalty, but savers lose the government bonus. Note that all Help to Buy ISAs are cash. There are no stocks and shares products.
Here’s the advice from Martin Lewis of Money Saving Expert
There is also the option of a Junior ISA, which is open to children up to the age of 18.
What about NISA?
This is the new name for the ‘normal’ ISA that we all know and love.
We hope this helps. Of course, you can contact Tucana if you have any questions. We’ll be happy to advise.