The New Help to Buy ISA: A Win-Win Situation for First Time Buyers

by Mrs Money

In 2013 came the Help to Buy scheme, a government initiative to help first time buyers secure a home with just a five per cent deposit. What followed was many first time buyers using the scheme to purchase their first homes, and the Help to Buy scheme has generally been well received.

However, many people who want to take advantage of the Help to Buy scheme are still struggling to raise enough money for a deposit. In recognition of this, from the 1st December 2015, first time buyers can now open a Help to Buy ISA which exists to support people who are saving for the deposit on their first home.

‘A No-brainer’

According to Money Saving Expert’s Martin Lewis, the Help to Buy ISA is ‘a no-brainer if you’re a first time buyer saving for a mortgage deposit’. With the new ISA, first time buyers can earn up to 4% interest tax-free, with the government adding an extra 25% on top of this. The Help to Buy ISAs are effectively allowing those saving for their first deposit to maximise their money, offering the opportunity to add an extra £3,000 to their sum.

Opening a Help to Buy ISA

These ISAs can be opened through banks and building societies, and anyone over the age of 16 can open one, as long as they have never owned a property before. Even if you’re only thinking about the possibility of buying a home in the future, it’s a good idea to open a Help to Buy ISA for your savings anyway. If you choose to use your savings for your first house deposit in the future, then you’ll benefit from the government’s 25% bonus. If not, then you still benefit from the ISAs high interest rates, but you won’t be eligible for the bonus. Either way, it’s a win win situation.

Are There Any Cons?

The Help to Buy ISA almost seems too good to be true, and whilst it’s a huge help for many people, it doesn’t offer the perfect solution for everyone. The Help to Buy ISA is strictly for first time buyers, which means if you’re saving as a couple and your other half has already bought a property, then they will not be eligible for the ISA. It’s not all bad though, as you would still be eligible as an individual, so half of your combined savings would benefit from the boost of the ISAs interest rate, as well as the 25% bonus from the government.  Find out more about the Help to Buy ISA on the House Network website.


Millennials Get By With A Little Help From Their Friends

by Mrs Money

Millennials are facing some tough times. While the global economy has admittedly improved to a great extent since the 2007 recession, and the unemployment rate in the US hovers at or below 5%, economic and employment prospects for those between the ages of 25 to 34 are more bleak than what the generations preceding them faced. Unlike their parents and older peers, millennials have come to realize that getting a good education and working hard don’t always lead to a successful life.

Consider this: 44% of young college graduates have had to settle for low-paying, often menial jobs outside their areas of study. And the number of those who do manage to find employment in their chosen fields, but are earning less than $25,000 a year, is higher than it has been in decades. Add to this the crushing debt of student loans with which many are saddled and the rapid rise in housing costs, and the outlook is beyond bleak for them. Many of those who are able to get credit find themselves using that credit just to meet everyday expenses, and some are finding it necessary to float some of their student loan payments on high-interest credit card cash advances. Clearly, the younger generation needs help, and finds itself turning to methods that had served them during their college years.

Refilling Empty Seats

Increasingly, these under-employed and overburdened young people are finding that their only viable option is moving back in with their parents. According to some media observations, millennials returning home adds to their parents’ burden and further discourages the young people. Increasingly, however, returning to the family home has proved to be the basis for a very symbiotic, even cathartic, parent/child relationship.

Freed from stratospheric rent and utility payments that can rapidly overwhelm a person earning a meager income, many returning offspring are providing their parents who are either retired or nearing retirement age with significant help covering their own expenses. Paying their parents an equitable share of their mortgage, utility, and other general household expenses costs the children far less than they would have to spend living on their own, while still leaving them more disposable income to cover student loan payments and transportation costs. Having a bit left over every month for socializing and entertainment serves to blunt the sense of despair that can come with the financial struggle of living on their own. At the same time, the parents find themselves left with more disposable income to better enjoy their lives and build their retirement nest egg.

In addition to the financial benefits to both parents and child, returning to the nest can have a profoundly positive effect upon both parties’ relationship with each other. The returning offspring are able to demonstrate a level of responsibility beyond what they could demonstrate as children, fostering a deepening level of their parents’ respect for them. The relationship can shift from that of parent to child, to the point where they begin to relate to each other as peers. In such cases, they have the potential to develop a deep friendship with each other that had previously been impossible to form.
Friends helping friends

As anyone who has lived on a college campus or at an off-campus apartment knows, sharing with a roommate or friend is a way of life. Beyond borrowing each other’s lecture notes and clothes, whoever has money left over for the last few days before a paycheck or allowance check arrives will usually be the one to foot the bill for pizza and beer or cover the cost of a needed textbook. Repayment terms, such as they are, will be casual.

When students graduate, the lending practice frequently continues with friends who live nearby or post-graduation roommates. As new graduates adapt more to the non-academic world, however, the dollar amounts that are needed from time to time grow significantly, and the repayment terms end up being more structured. At some point, millennials who find themselves in a money crunch, or who need to purchase something major like a replacement for the car that (barely) got them through school, will seek out loans from more traditional lenders.

If the borrower has established a good credit history, approval for a loan might not be too difficult to get. But for those who have been struggling, getting that loan might be much more difficult, and they will end up seeking help from their parents or friends. Unless the parents or close friends have a large nest egg, they might not be capable of lending the money outright. Friends in particular might also feel uncomfortable making the loan themselves. In such cases, the borrower might ask the parents or friend to be a co-signor on a loan. On these loans, the loan is actually made by a financial institution, on the stipulation that an individual with more established credit sign on as guarantor, with the contractual promise to repay the loan, should the borrower default.

With this type of loan, the borrower has the opportunity to obtain the loan at the favorable terms and low interest rate for which the more established guarantor is qualified. Since the loan is actually made to the borrower, and his or her credit report will be affected by how well he or she meets the loan obligation, a guarantor loan can be a good opportunity to build credit. By making all payments on time, the level of trust of both the lending institution and the guarantor are enhanced. On the other hand, failure to comply with the terms of the agreement will not only add a negative entry to the borrower’s credit history, it can also be the source of significant friction in the borrower’s relationship with the guarantor. Obviously, it is to everyone’s advantage for the loan to be repaid as agreed upon.

Things might seem somewhat bleak for newly-graduated millennials, but by adapting to the difficult circumstances they face, they have the opportunity not only to thrive financially, but to use their awareness of the problems they have faced to make matters easier for the generations that follow.

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