With house prices lower than they have been for years, it might seem like there has never been a better time to get on the housing ladder. However, one of the reasons why house prices are so low is that mortgage lenders are currently being very cautious about who they lend to, and how much they lend them, which has made finding the money to buy a house a lot more difficult. Some mortgage lenders require borrowers to find deposits of as much as forty percent of the property value if they are going to access the best deals. This has led to many would-be homeowners looking to grow their savings before making a move into the property market.
There are a number of ways in which you can save for the deposit on your first home. The ISA(Individual Savings Account) scheme, which allows you to save and invest a certain amount of money each year without paying any capital gains tax on the interest, is the first option that most savers turn to. There are essentially two types of ISA, Cash ISAs and Stocks and Shares ISAs. A cash ISA is much like any other savings account, except that you do not have to pay tax on the interest, so you will receive a higher rate of interest as a result. You can invest up to £5,100 every tax year in a cash ISA, so if you were to invest the maximum amount for ten years, you would have built up a tax free nest egg of £51,000 plus interest.
Stocks and Shares ISAs provide a way for you to invest a certain amount tax free in the stockmarket, usually in the form of an investment vehicle such as unit trusts or corporate bonds. You can invest up to £10,200 per year in a stocks and shares ISA, although you cannot invest more than £10,200 via the ISA scheme in any one tax year, so if you have a cash ISA as well, and invested the maximum £5,100 in that year, you would only be allowed to put £5,100 into your stocks and shares ISA that year. Stocks and Shares ISAs are inherently riskier than cash ISAs, in that the value of your investment could go down as well as up, but the returns are potentially far greater. The annual cost of a stocks and shares ISA depends very much on how much work it requires. For example, a low maintenance fund such as Legal & General’s Index Tracker, which simply rises and falls in line with a major financial index such as the FTSE, can cost as little as 0.4% in annual management charges, whereas their actively managed funds can cost as much as 1.5% per year, although you might expect these to do better. Have a look at the Legal & General website to find out more about opening an ISA.
