A millennial’s guide to investing towards your first home

The cost of rent surpasses the cost of mortgage repayments in most parts of the country. So it is doubly frustrating for millennials wanting desperately to buy their own home. Trying to scrape together the £30,000+ deposit required to get a mortgage, has many millennials asking how am I meant to save when I’m spending all my money on rent?

While a daunting task, it’s not impossible. Here we take a look at different ways to save towards your deposit. Throughout the article we’ll use the example of saving £30,000 within 5 years.

‘The ache for a home lives in all of us, the safe place where we can go as we are and not be questioned.’ – Maya Angelou, American poet and civil rights activist

ISA this, ISA that, but which one is best?

  1. Lifetime ISA

    Anyone aged between 18-39 can open a Lifetime ISA (LISA) which has a higher savings maximum of £4,000 a year (approximately £333 a month). The LISA is also matched with a 25% government bonus, with a maximum bonus of £1,000 per year, until the age of 50.

    The LISA is offered as either cash or stocks and shares investing, so you can be earning interest if you go for cash or the potential for capital growth if you choose stocks and shares. However, even if you kept your savings in cash, in 5 years you’d have £20,000 saved with £5,000 government bonus. Leaving you much closer to the £30,000 deposit you need for your first home.

    If you chose to invest your LISA, at £4,000 + £1,000 bonus annually, assuming an annual return of 7%, you could have £30,700 in 5 years. Target achieved. Thanks compounding interest. It’s important to note when investing in stocks and shares, some element of risk is involved and you may not get back the amount originally invested.

    The LISA does come with a few stipulations too. It can be used as a deposit on home purchases up to £450,000 or for your retirement. If you withdraw money before age 60, other than to purchase your first home, you will pay a government withdrawal charge of 25%, which means you’ll get back less than you put in. For example, if you’d put in £10,000 and government adds £2,500 – you’ll only get £9,375 back. Read the full details here.

    Additionally, the LISA can be used as a means of saving your retirement. For example, if you’re 25 and invest the maximum into your LISA every year for 25 years, assuming an annual return 7% you’d have £338,000 when you hit 50, compared to £142,000 in a cash LISA, earning 1%, over the same period.

  2. Stocks & shares ISA

    A stocks and shares ISA is what we referred to way back in the beginning of our series when talking about investing in stocks, bonds and funds.

    Although it doesn’t come with a government bonus, it may give you the flexibly you need depending on your circumstances. Maybe you like the idea of investing but you still want access to the money (something the LISA takes away with its withdrawal fee). You may therefore consider investing towards your deposit and other future goals in an ‘original’ ISA.

    Since you won’t receive a government bonus, you would need to save estimated £5,000 a year to reach the deposit amount in 5 years assuming the 7% annual return. Remember, investing does come with some element of risk and the value and income from investments can do down as well as up and are not guaranteed. This means you may get back less than you invested.

    With this type of ISA, you can invest up to £20,000 a year, with the knowledge that you can easily withdraw any money that you may need in the interim. More information on how and where to invest your ISA for the future is available here.

Getting the best deal

Whether you’re opening a LISA or investing in stocks and shares, you’ll need to keep an eye on your account to ensure you’re getting the most from your money. If you’re going for a cash LISA, you may need to transfer between providers from time to time to ensure you’re getting the best deal. Likewise, if you choose stocks and shares, you should review and update your portfolio at least once a year as your investment priorities may change.

But what happens when you’ve saved enough for a deposit?

According to a study by reallymoving* ‘only 60% [of first time buyers] said they planned to secure a mortgage in principle in advance of making an offer on a property. Only 55% understood the true meaning of ‘exchange’ with a worrying 37% believing it’s the date they collect the keys and move in.’ Yikes!

While it may not be related to investing in funds, buying a house is an investment so we want you to be as prepared as possible for all the jargon thrown around. Instead of me trying to explain something a little out of my depth *ahem, not a homeowner* I suggest reading the ‘ultimate guide to buying your first home’ from reallymoving. It covers everything from conveyancing, to different types of mortgages, surveys and more.


*survey of 500 people who are planning on buying their property in the next 3 years, full report

This article is provided for information only. The views of the author and any people quoted are their own and do not constitute financial advice. The content is not intended to be a personal recommendation to buy or sell any fund or trust, or to adopt a particular investment strategy. However, the knowledge that professional analysts have analysed a fund or trust in depth before assigning them a rating can be a valuable additional filter for anyone looking to make their own decisions. Past performance is not a reliable guide to future returns. Market and exchange-rate movements may cause the value of investments to go down as well as up. Yields will fluctuate and so income from investments is variable and not guaranteed. You may not get back the amount originally invested. Tax treatment depends of your individual circumstances and may be subject to change in the future. If you are unsure about the suitability of any investment you should seek professional advice. Whilst FundCalibre provides product information, guidance and fund research we cannot know which of these products or funds, if any, are suitable for your particular circumstances and must leave that judgement to you. Before you make any investment decision, make sure you’re comfortable and fully understand the risks. Further information can be found on Elite Rated funds by simply clicking on the name highlighted in the article.