Building a Mortgage Deposit with ISAs: Tips for Effective Saving

Did you know that less than 25% of 25-34-year-olds in Britain own a property with a mortgage? Year by year, that figure keeps decreasing, with fewer young people able to afford a home than ever before. One crucial reason for this is that they simply don’t have enough saved up. 

With rent and bills to pay, and super high house prices, those without a head start will find it incredibly tricky! That’s where you – the parent – can lend them a hand. By setting up a Junior ISA whilst your little one is still young, you can help them on their way to owning a home when they’re older.

What Is a Junior ISA?

A Junior ISA is a long term, tax free savings account specifically for children that can be opened by a parent or legal guardian of a child living in the UK who is under the age of 18.  

There are two types of Junior ISA; cash Junior ISAs which are savings accounts that pay interest (any interest is tax free) and stocks and shares Junior ISAs where contributions are invested and no tax is paid on any capital growth or dividends.

The money in the account legally belongs to the child, though they can’t access it until they turn 18.  The parent manages the account on behalf of the child until then but at that point, it automatically becomes an adult ISA, and the child can continue saving, or withdraw some or all if they would like. 

The other great thing about Junior ISAs is that they allow contributions from people other than the parent so is ideal if a grandparent or an aunt and uncle want to help out. 

At KidStart, we have the Beanstalk app which offers stocks and shares through a Junior ISA. Unlike saving where your returns are dependent on the interest rate, returns from investing depend on how well the investments do. There is, of course, a risk that you could end up with less than you put in but evidence suggests that over the long term stocks and shares tend to outperform cash as the returns can compensate for the ups and downs.

How Can You Save For a Mortgage With a Junior ISA?

Your child can spend the money you save for them on whatever they like once they turn 18.  Our experience is that the majority of children continue to leave money invested, even if they make a partial withdrawal, particularly if the parents and children have had a conversation/agreed on what they should do with the lump sum. Clearly, parents can agree that the funds should go towards a down payment on their house. Or, perhaps it’ll be used for mortgage payments after the house is purchased. It’s entirely up to you and your child!

Saving for a future mortgage deposit is as easy as putting money into the Junior ISA. You can either set up monthly deposits or add to the fund whenever you have some cash to spare. There’s no commitment to saving with Beanstalk, making this a stress-free way to slowly build up a substantial fund.

One of the best things about a Junior ISA is that it’s a long-term savings account. Though you may not feel like you’re doing much by popping in a few pounds every month, after 18 years it will have added up to a healthy sum. Your lifestyle isn’t impacted, and you’re giving your child a helping hand toward buying a home.

Should You Be Saving For Your Child’s Mortgage Now?

There’s no doubt that the earlier you start saving for your child, the easier it’ll be for them to get a mortgage. So, should you be saving for them now? Definitely if you can afford to!

Starting to save early means that your money has a longer to grow and takes the weight off of your shoulders. The more time you have until they turn 18, the easier it’ll be to save up a hefty sum without taking a large chunk out of your monthly budget. 

It’s much harder to get on the property ladder now than it was just 20 years ago. In another 20, who knows? It may have gotten even tougher. Starting to save now ensures your child has a head-start, helping them get off their feet with a little bit of support from you.

Tips For Long-Term ISA Savings

Long-term savings accounts are a great way to remove the stress from saving. But, that doesn’t mean it’s always easy! If you’re thinking about opening an ISA but unsure how you’d manage long-term savings, we’ve got some tips to help you out.

Set Up a Direct Debit

Though you don’t have to, setting up a direct debit is a great way to ensure you’re saving every month. A smart idea is to set your direct debit for the day after you get paid so that the money goes out of your account before you have a chance to spend it. Out of sight, out of mind – but still earning interest or benefiting from investment growth!

Be Realistic

You’ve got around 18 years to be saving for your child (depending on what age they are when you’re setting up the ISA, of course). So, there’s no need to push your money to the limit and set unrealistic goals. It’s best to be cautious with how much you can put in every month, leaving a little wiggle room to work with. If you underestimate your savings budget, you can always top the account up at the end of the year with whatever’s left.

Choose a Reliable Company

Your money is incredibly important, so it’s crucial you choose a reliable company to set up your Junior ISA with. Do your research before you start, or opt for a company you already know and trust, like KidStart

Final Words

Starting a Junior ISA for your child is never a bad idea. Whether they’re 10 weeks old or 10 years old, it’s always a good time to get started! With no tax, and many years to turn your loose change into a healthy profit, it really is a no-brainer. Just remember the tips in this article, and you’ll be setting your child up for a happy, secure future.

?Please note: Capital at risk. As with all investments, the value can go up as well as down.  The tax treatment of ISAs depends on your individual circumstances and may be subject to change in the future.