The latest research by leading peer to peer lending platform Sourced Capital, part of the Sourced.co Group, has looked at how best to invest when it comes to saving for a house in order to save years’ worth of painstaking saving.
Cash ISAs have become a popular way for many to stash away the cash with the aim of climbing the ladder, with the Help to Buy ISA in particular helping many save that all important deposit.
While buyers can no longer take advantage of the scheme there are a whole host of Cash ISA saving accounts that average a return of 2.12% a year with a maximum annual investment of £20,000 allowed.
This means that investing £20,000 a year on the current average UK house price of £235,298, and when taking into account the addition of compound interest, maximising the benefits of a Cash ISA would see you pay off the cost of a property in 10 years compared to the 11.8 years it would require to save £20,000 a year with no benefit from interest.
With the lower cost of buying in Northern Ireland and Scotland, it would take 6 and 7 years respectively, instead of 7 and 7.7 years saving £20,000 a year straight up, and in the North East a Cash ISA can also cut your saving time to 6 years instead of 6.5.
In London, you’re looking at a longer saving stretch of 19 years although this is marginally better than saving for 23.8 years without the help of an ISA.
However, investing in an Innovative Finance ISA (IFISA) through a peer to peer platform such as Sourced Capital could help you pay off your property much faster, with annual returns hitting 10% and higher.
With backing from the UK government, showing their confidence in the sector, there is now encouragement to invest in property through peer to peer lending. The IFISA is a category of ISA which was launched in April 2016 for UK taxpayers. Previously, there have been two main types of ISA: Cash ISAs and Stocks and Shares ISAs. Similar to these ISAs, the IFISA allows you to invest money without paying personal income tax. This enables you to invest your money into the growing peer to peer market.
Like cash ISAs Each tax year, you get an allowance of up to £20,000 to put into IFISAs which you can distribute across your different ISAs should you wish to. In addition, you can transfer your previous year’s ISA investments into your IFISA.
While this investment option allows for a much quicker return across the board, nearly 3 years faster in the UK as a whole, the time saving is most notable in London where an IFISA investment could accrue a big enough saving pot to buy in the capital at a cost of £475,458 in just 12 year’s, as opposed to 19 year’s via the average Cash ISA – a seven year difference!
Stephen Moss, founder and MD of Sourced Capital, commented:
“Record low interest rates over such a prolonged period have been great for those looking to secure a mortgage, however, those still trying to accumulate a savings pot have suffered where the rate of interest is concerned.
As a result, the consumer has become savvy when it comes to saving and the market has been flooded with a whole host of options to make our money work harder. While some Cash ISAs are proving popular, the peer to peer sector has really led the way with some of the best rates of return and whether you are trying to save a mortgage deposit, or pay off your property completely, there are a number of platforms like Sourced who can help you reach your goal far quicker than some of the more mainstream options. As always, the biggest hurdle is educating the consumer on the additional options open to them and although their capital may be at risk, investing via more professional platforms in the peer to peer sector can bring a much better return.”
|Time to save the total value of a home: Cash vs Cash ISA vs IFISA (Based on maximum annual Cash ISA investment of £20,000 and taking compound interest into account)|
|Location||Average House Price||Savings – 20k only|
|Time to buy (years)|
|East of England||£291,281||14.6|
|West Midlands Region||£204,238||10.2|
|Yorkshire and The Humber||£165,642||8.3|
|Average House Price||Land Registry|
|Average Cash ISA Rate||Which? (2019) How to find the best Cash ISA|
|Compound Interest Workings||The Calculators Site|