Millennials (those born 1981-2000) face some fairly tough financial challenges today. House prices that are beyond unaffordable – especially in London – combined with poor interest rates on savings and wage growth that rarely rises with inflation can create some serious barriers to positive financial health. Although this is the age group that has been tagged “Generation Rent,” there are still many Millennials who have ambitions to get a foot onto the bottom rung of the housing ladder, regardless. In the current financial climate, accruing wealth and property from a starting point of zero is tough but with the right financial advice Millennials could change the future that has been forecasted for them.
Be prepared to buy with someone else
According to the Institute of Fiscal Studies, house prices in the UK have shot up by 152% over the past two decades. Wage growth has not. Most mortgage lenders will limit the amount available to borrow to four times that of annual salary. According to the Annual Survey of Hours and Earnings, the average UK salary is around £27,000. The average price of a property in the UK? £225,047, according to the Land Registry. So, take the average salary to a mortgage lender and you won’t even get to half the amount you’ll need to borrow to buy the average property. However, if you buy with another person you’ll have much more chance of success. Whether that’s a sibling, a partner or a friend this way you’ll both get a foot onto the property ladder in an affordable way – and sooner too.
Use Help to Buy
It used to be the case that lenders offered solutions to those who had not quite been able to get a deposit together and weren’t going to be gifted one by parents. These were often in the form of a 125% mortgage (i.e. including the deposit) or an interest only mortgage. Today, few – if any – mortgage lenders offer these products and for good reason, as they can place a heavy financial burden on those who are trying to pay them off. However, that does leave rather a gap for anyone without five figures in savings but who is still keen to buy. Help to Buy is the government scheme that has stepped in to fill this gap. You only need a 5% deposit to make an application for a mortgage with Help to Buy – a government equity loan for 20% of the property purchase price will cover the rest. Help to Buy is available for new build properties only, with a purchase price of less than £600,000.
Open a Lifetime ISA
For those under the age of 40 (i.e. all Millennials), a Lifetime ISA offers a tax free savings vehicle that also has the benefit of a government top up. This type of ISA is especially useful for freelancers or anyone who doesn’t benefit from being part of an occupational pension scheme. You can pay up to £4,000 into a Lifetime ISA each year and the government will top up whatever you pay by 25%. The Lifetime ISA is designed to be used either as the deposit for a first home or to pay for retirement – if you opt to use it for anything else then you’ll lose 25% of whatever is in it as a penalty.
Learn how to budget
Key financial advice for any demographic and any generation is learning how to budget. Without this key skill it’s almost impossible for anyone to achieve financial success. Budgeting is simply the balancing of incoming and outgoings to ensure that one doesn’t overwhelm the other. However, there are many different ways to achieve this. One of the most successful is the 50-30-20 rule:
- 50% of your income is allocated to necessities (e.g. bills and rent)
- 30% of cash is put towards financial goals (e.g. saving for a deposit)
- 20% of what you earn goes to the things you want (e.g. festival tickets, new shoes)
Map out a pension and savings now
Getting into the habit of putting money aside for the future is better done sooner rather than later. Old age may seem decades away but that time can quickly pass and there are some pretty expensive events that could take place in between. Sign up to an occupational pension scheme as early as possible – minimal contributions now will build up over time – and get used to putting aside the 20% of what you earn so that you can reach your financial goals. If you’re not great at financial planning and saving then get a little help from technology. The Cleo app, for example, is an AI assistant designed to help you get better with your cash.
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