House prices have hit an all-time high again.
The average house price in Britain has now reached £272,992, according to the Halifax house price index – £20,757 more than a year ago.
Depending which side of the fence you sit on this can either be seen as good news (hooray, my home is rising in value) or bad news (argh, homes are getting even more expensive).
Tough times: Today, an average home costs 5.5 times the typical first-time buyer’s salary – far higher than the long-term average
That’s a division that previously was often crudely made between homeowners and non-homeowners, but I think we can safely say the latter camp has got increasingly crowded in recent years and there are a lot more homeowners eyeing extra bedrooms in it.
Spare a thought though for the first-time buyers struggling to save a deposit, who are watching the average home get pricier at a rate of £1,700 per month.
That £273,000 average house price makes a 10 per cent deposit a huge £27,300 – roughly an entire year’s pre-tax median full-time salary in the UK.
Imagine starting from scratch and trying to save that much money, particularly in a world of sub-1 per cent savings rates, in which compound interest is practically no help.
Someone in their early twenties, on a £27,000 salary, paying rent, bills, commuting costs, and other living expenses would be doing reasonably well if they could save £200 per month of their roughly £1,800 take home pay.
Putting that much aside each month, it would take just under 11 years to reach £27,300 at the current best buy easy access savings rate of 0.75 per cent.
But as we highlight in our Ask an Expert question about investing for a deposit, taking more risk for a higher return doesn’t shave a huge amount off the time needed to reach the target.
If our first-time buyer invested £200 per month and got an average annual 7 per cent return – which is above the recent medium-term FTSE All Share average – it would take eight years and nine months.
This is the sort of lengthy time period that qualifies for an investment rather than savings strategy.
The problem is that by taking the extra risk of losing money to get a higher reward, they leave themselves open to the possibility that something goes wrong and as they approach the time when they need that deposit, and the stock market crashes leaving them 10, 20 or 30 per cent down.
What makes a bigger difference to timescales is managing to set aside more each month.
Get up to £300 per month and in the above savings rate example it would take seven years and five months instead of almost eleven.
With the investing example, it would take six years and two months rather than nearly nine years.
This is still long enough to make any prospective first-time buyer despair – especially when the cost of a home is rising far faster than they can salt money away.
Quarterly house price growth hit a high not seen since 2006, the mortgage lender said
These sums illustrate why first-time buyers often require some assistance from the Bank of Mum and Dad to get a deposit.
But not everyone has one of those banks available – and many who do can’t tap it up for tens of thousands of pounds.
Fortunately, there is another helping hand that I’d recommend any aspiring first-time buyers who qualify take advantage of, the Lifetime Isa.
How long would it take you to save £27k?
This is Money’s long-term saving and investing calculator can show you how long it would take to hit £27,000 or any other amount by saving and investing.
Change the amount saved, years, and percentage to see.
If you are under 40, saving for a home deposit and have never owned a property before in this or any other country, this seems a no-brainer.
This government scheme tops up contributions each year by 25 per cent on either a savings or a stocks and shares investment version, with the catch being that the pot must either go on a first home, or be used as a substitute pension fund and cannot be accessed until age 60.
Up to £4,000 a year can be contributed to a Lifetime Isa and that 25 per cent bonus will make a real difference to knocking some years off saving for a deposit, especially if you start getting money into one as soon as possible.
One trick is to shuffle any existing savings or gifted help from the Bank of Mum and Dad into the Lifetime Isa to earn the bonus on it and hopefully compound some interest or growth.
Saving a deposit will still be tough, but this will help. And, fingers crossed, house price inflation will dramatically slow and your wages will go up, making saving that deposit easier.
Compare the best DIY investing platforms and stocks & shares Isa
Investing online is simple, cheap and can be done from your computer, tablet or phone at a time and place that suits you.
When it comes to choosing a DIY investing platform, stocks & shares Isa or a general investing account, the range of options might seem overwhelming.
Every provider has a slightly different offering, charging more or less for trading or holding shares and giving access to a different range of stocks, funds and investment trusts.
When weighing up the right one for you, it’s important to to look at the service that it offers, along with administration charges and dealing fees, plus any other extra costs.
To help you compare investment accounts, we’ve crunched the facts and pulled together a comprehensive guide to choosing the best and cheapest investing account for you.
We highlight the main players in the table below but would advise doing your own research and considering the points in our full guide linked here.
|Admin charge||Charges notes||Fund dealing||Standard share, trust, ETF dealing||Regular investing||Dividend reinvestment|
|AJ Bell YouInvest||0.25%||Max £3.50 per month for shares, trusts, ETFs.||£1.50||£9.95||£1.50||1% (Min £1.50, max £9.95)||More details|
|Charles Stanley Direct||0.35%||No platform fee on shares if a trade in that month and annual max of £240||Free||£11.50||n/a||n/a||More details|
|Fidelity||0.35% on funds||£45 fee up to £7,500. Max £45 per year for shares, trusts, ETFs||Free||£10||Free funds £1.50 shares, trusts ETFs||£1.50||More details|
|Hargreaves Lansdown||0.45%||Capped at £45 for shares, trusts, ETFs||Free||£11.95||£1.50||1% (£1 min, £10 max)||More details|
|Interactive Investor||£119.88 as £9.99 per month||£7.99 per month back in trading credit||£7.99||£7.99||Free||£0.99||More details|
|iWeb||£100 one-off||£5||£5||n/a||2%, max £5||More details|
|Freetrade||Free for standard account £3 month for Isa||Freetrade Plus with more investments is £9.99/month inc. Isa fee||No funds||Free||n/a||n/a||More details|
Only Vanguard funds
|Free||Free only Vanguard ETFs||Free||n/a||More details|
|(Source: ThisisMoney.co.uk July 2021. Admin charges quoted annually, may be monthly or quarterly) |
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