One of the reasons it’s smart to start your saving earlier in life — especially if you’re looking to buy a home — is that it opens up the option of picking a longer-term mortgage deal. Spreading your repayments out over more years, while it means more interest overall, can still bring down your actual month-by-month costs by a lot. In fact, with the right mortgage, it can easily work out cheaper than renting. Obviously enough, you’ve still got to scrape together your deposit to get started, but once that’s out of the way the road ahead can turn out much less rocky.
Speaking of saving for a deposit...
A Lifetime ISA is a really strong way to save toward a deposit to lay down on your first home. If you qualify for one – basically meaning you’re between 18 and 39 years old – then you get a yearly pay-in limit of £4,000 and a 25% top-up on everything you save up to that limit. So, assuming you pay in the maximum in a year, the government will dump an extra grand into your savings pot.
As with other kinds of ISA, you’ve got a few choices about how your money is used. It’s possible that you could see the highest yearly growth in your savings with a stocks and shares LISA, for instance. However, when there’s a specific target to be saved toward, a lot of people lean toward the potentially less risky cash ISA option.
There’s one slight catch with LISAs that you need to be aware of, though. Most of the benefits disappear instantly if you need access to your money in a rush. If you take anything out before the age of 60 to use for anything other than buying a home, you get hit with a 25% penalty to pay. This basically wipes out all of the top-up payments you’ve received on that money. If you’re actually saving toward buying a house, then there’s no problem – unless you hit a bump in the road and need to cash out early.
Read our guide: Alternatives to savings accounts