Deposit savings account to relieve Bank of Mum and Dad
An account which offers bonuses to first-time buyers saving for a home is set to take over from the Bank of Mum and Dad as the default source for mortgage deposits.
That is according to Paul Flavin, founder of provider Mortgages.Online, who is forecasting relief for parents’ finances as the benefits of the Government’s Lifetime ISA scheme begin to pay off.
Lifetime ISAs were launched in 2017 as a deposit-saving scheme and a way for people to put money away for retirement. The tax-free savings accounts, which can only be opened by those aged between 18 and 40, allow savers to invest up to £4,000 a year.
Additionally, the Government adds a bonus of 25% to the savings, which means savers can benefit from a bonus of up to £1,000 a year to help them save for retirement or to buy their first home.
So popular is the scheme, Flavin is predicting it will offer respite for the Bank of Mum and Dad.
His forecast comes after the Nottingham Building Society revealed its Lifetime ISA, launched in 2018, was seven times more popular amongst its customers than the Help to Buy ISA, which is due to end this year.
The Help to Buy version, which also benefits from a 25% Government bonus, allows first-time buyers to deposit a lump sum of up to £1,200 and up to £200 each month.
Flavin said: “Some commentators have highlighted the limitations of the Lifetime ISA in that the savings can only be taken out either at age 60 or on the purchase of a first home.
“But investors who have saved the maximum £333 a month for the past two years now have a nest egg of £10,000.
“With average house prices currently running just over £200,000, and in many locations substantially below this, we are now seeing buyers able to enter the market again without having to rely on their parents.”
According to The Nottingham, the large majority of those opening the Lifetime ISA at the building society were first-time buyers planning to use the funds for their first home.
Jenna McKenzie Day, senior savings manager at The Nottingham, said: “The UK is waking up to these benefits and with the Government still planning to pull the Help to Buy ISA in November, this will only gain momentum.”
Article by Kate Saines for www.whatmortgage.co.uk