Saving for Your First Home

Making the first step onto the property ladder can feel overwhelming. If you're looking for advice on saving for a house, read our extensive guide here.

What is a Cash ISA?

Just like a savings account, a Cash ISA (Individual Savings Account) is a safe, secure way to store your money. The only difference is that any interest you earn on your savings is tax-free.

What are the benefits of an ISA?

There are many reasons to opt for a Cash ISA over alternative savings accounts. Not the least of these, is that they’re a great way of saving for your future. Other benefits include:

  • Currently, all basic rate taxpayers can earn £1,000 of tax-free savings interest per year, under the Personal Savings Allowance (PSA). However, there is no guarantee that this won’t change in the future. With ISAs, you’re guaranteed your savings will always be tax-free. Investing your allowance each year means you can grow your savings without having to pay any tax.
  • If you were to opt for an alternative regular savers account and savings interest rates increased, the money you’d saved may tip you over the Personal Savings Allowance limit.
  • Some types of Cash ISA come with the added benefit of government boosting. For example, the 25% government bonuses offered with Help to Buy ISAs and Lifetime ISAs. 

Are ISAs tax-free?

Yes, with a Cash ISA you can rest assured your savings are not only tax-free, but safe from changing regulations.

The only time when a Cash ISA isn’t exempt from tax is if you are aged 16 or 17 years old, and the money in your account is a gift from a parent. If this is the case, your parents may have to pay tax if parental settlement rules apply.

Cash ISA rules

  • To be eligible for a Cash ISA, you must be aged 16 or over and a UK resident. The only exception to this is in the case of Lifetime ISAs, that require you to be 18 years old
  • You can only open one Cash ISA per year
  • You have a single ISA allowance each year, which you can divide between a Cash ISA, a stocks and shares ISA, an Innovative Finance ISA and/or a Lifetime ISA. With a Lifetime ISA, the maximum allowance is £4,000 each year, meaning you have up to £16,000 to split between the other types

How much can I put in an ISA?

The total amount you can put into a Cash ISA for the 18/19 tax year is £20,000. This is known as the ISA allowance and is available to every person over 16 in the UK. You have the choice of using up the maximum allowance in one account, or splitting between the different types of ISA products.

Any interest your ISA earns doesn’t count towards your Personal Savings Allowance.

When is the ISA deadline?

The ISA deadline is midnight on 5th April each year; this is the end of the tax year. Any unused allowance doesn’t roll over into the new tax year, so you should try to make the most of your allowance before the deadline comes around. For more information on the ISA deadline, refer to our ISA deadline guide.

What are the different types of Cash ISA?

There are a number of different Cash ISAs available to help you achieve your savings goals. Whether you’re saving for your first home or setting up a nest egg for your golden years, there’s an option to suit you.

Fixed Rate ISAs

A Fixed Rate ISA pays a guaranteed amount of interest for a set period of time, from six months to five years. Though withdrawals are permitted, they’re subject to penalties. Consequently, a Fixed Rate ISA is better suited to those who won’t need immediate access to their savings.

Help to Buy ISAs

A Help to Buy ISA is a government scheme designed to help you save for a mortgage deposit on your first home. To qualify, you can’t own a property anywhere in the world.

You can save up to £200 a month in a Help to Buy ISA, and they come with the added bonus of government contributions. In this case, your savings could be boosted by 25%. The minimum government bonus is £400, so you will have to have saved at least £1,600 to qualify for a government bonus.Please note, Help to Buy ISAs are due to be withdrawn in November 2019.

Lifetime ISAs

A Lifetime ISA is a tax-free savings account that also offers a government bonus of 25% on top of the money you put in, up to a maximum of £1,000 a year. With a Lifetime ISA, you can deposit as much as £4,000 per year until the age of 50. Lifetime ISAs can only be opened and funded by those aged 18 to 39.

Junior ISAs

Junior ISAs are tax-efficient ways of saving for your little one’s future. You must be 16 or over and a UK resident to open a Junior ISA on behalf of a child, or be a child aged 16 to 18 to open one for yourself. The Junior ISA allowance for 2019/20 is £4,368.

Find everything you need to know about Junior ISAs here.

Refer to our Cash ISA page to discover the full range of ISAs available with Newcastle Building Society.

How many ISAs can I have?

You can have multiple ISAs at one time, but you can only open or pay into one of each type of ISA using your £20,000 allowance. 

Though you can only open one Cash ISA each tax year, there’s no limit to the number of ISA transfers you can make, should you spot a better interest rate with another provider. However, with Newcastle Building Society, you can open multiple cash ISAs using our CustomISA service. You can find more about that here.

What happens if I take money out of my ISA?

Withdrawals are permitted from most ISAs. However, if you make a withdrawal from a Fixed Rate ISA, you will be subject to a penalty in the form of a loss of interest on your savings.

If you think you will need access to your savings quickly, then you may be best suited to an ISA that doesn’t penalise withdrawals.

In relation to the Lifetime ISA a penalty of 25% of the withdrawal amount will be deducted unless the funds are being used for either:

  • Buying your first house (the account must have been held for a minimum 12 months)
  • You reach the age of 60
  • You are diagnosed with a terminal illness and have less than 12 months to live

Can I transfer my ISA to another provider?

You are permitted to unlimited transfers each tax year. However, you should always check that your new provider accepts transfers, as not all banks and building societies are obliged to do so

Avoid withdrawing money from your ISA yourself, as your savings may lose their tax-free status!

There are a number of reasons you may want to transfer to a new provider. For example, if you’ve spotted better rates elsewhere. Read our complete guide to the ISA transfer process for more information.

Can I inherit an ISA?

If your spouse or civil partner passes away, you will be eligible to receive an Inheritance ISA Allowance. Read more information about inheritance tax allowance in our helpful inheritance tax allowance guide.

Applying for a Cash ISA with Newcastle Building Society

If you'd like to apply for a Cash ISA at Newcastle Building Society, the process is really simple. We also accept ISA transfers, including Lifetime ISAs. To get the ball rolling, simply browse our Cash ISA product range or contact us.​

For a lot of people, making the first step onto the property ladder is an overwhelming prospect. However, daunting as it may seem, there are plenty of ways to make the saving process manageable.

Where do I start?

Reviewing your current financial situation

If you’re struggling to know where to start, it’s best to review your current financial situation first.

Some questions to consider are:

  • How much is my total income?
  • How much do I spend on living costs?
  • Do I have any existing savings?
  • Are there any family members or friends I may be able to borrow from?
  • Is there any inheritance money I’m entitled to?

Having an idea of your financial situation, as well as family and friends who may be able to help, gives you a baseline to work with. From here, you can start to piece together how much you will need to save, to afford your first home.

Setting manageable targets

A key part of saving for a house is making sure you keep on top of your savings.

Setting manageable targets that factor in your current income and outgoings are a great way to ensure you stay on track. Once you have decided how much you can realistically save monthly, you may choose to set yourself a six-month target.

Great ways to ensure you stick to saving for a house are:

  • Setting up a standing order that automatically transfers money into your savings account
  • Budgeting your income to avoid the need to dip into your savings

For more help on cutting back your living costs, read our guide on Ten Ways to Start Saving £15K.

What kind of savings account do I need?

Help to Buy: ISAS

Available to anyone 16 or over, Help to Buy: ISAs are a popular choice for many first time buyers.

When you save money in a Help to Buy: ISA, the government rewards you by adding 25% of what you have already saved, tax-free.

This means for every £200 you save, the government will reward you with a £50 bonus. However, you need to have saved at least £1,600 before you are eligible for a Government bonus.

The maximum bonus you can receive is £3,000. In order to receive this, you will need to have saved £12,000 in your ISA. However, if you are purchasing a house with another person you can both open separate Help to Buy:ISAs and receive a government bonus for each account. This means if you’re looking to buy your first home with a partner, the two of you could receive a total of £6,000 from the government, to be used to buy your home.

When you are ready to buy your first home, you will need to instruct your solicitor or conveyancer to apply for your government bonus.

The bonus will be added to the money you are putting towards your home; it must be included with the funds consolidated at the completion of the transaction. It cannot be used for the deposit on your first home due at the exchange of contracts, to pay for solicitor fees, estate agent fees or any other indirect costs associated with the home buying process.

First Home Saver

As well as the Help to Buy: ISA, we offer a First Home Saver that rewards customers with a £1,000 bonus when they choose to take out a mortgage with us.

The more you save in the Newcastle First Home Saver, the more cashback you can earn, up to a maximum of £1,000 if your mortgage with the Society is £200,000 or more. This is illustrated in the table below.

Newcastle First Home Saver ISA Savings Balance Newcastle Building Society Mortgage Loan Amount Cash Reward

£5,000 - £9,999.99

£75,000 +


£500

£10,000+


£75,000 - £149,999.99

£500


£150,000 - £199,999.99

£750


£200,000+

£1,000

Custom ISA

While ISA rules dictate you are not permitted to open more than one ISA in each tax-year, our CustomISA facility allows you to not tie yourself to a single ISA product. This means you can use the Newcastle First Home ISA alongside the Newcastle Help to Buy: ISA to help you through the house buying process even more quickly.

For example, if you can afford to save £400 a month, you can save £200 in the Newcastle Help to Buy: ISA and £200 in the Newcastle First Home Saver*. The table below shows what your government bonus and Society cashback could be if you by doing this over different time periods.

 

 


Newcastle Help to Buy: ISA Balance

Government Bonus

Newcastle First Home ISA Balance

Society Cashback

After 1 year

£2,400

£600

£2,400

£0

After 2 years

£4,800

£1,200

£4,800

£0

After 3 years

£7,200

£1,800

£7,200

£500*

After 4 years

£9,600

£2,400

£9,600

£500*

After 5 years

£12,000

£3,000

£12,000

Up to £1,000*

*Newcastle First Home Saver cashback is based on saving for a minimum 12 months and other criteria.

 

Lifetime ISAs

If you choose to save with Newcastle Building Society, you have the option of two Government savings schemes; as well as a Help to Buy: ISA, we offer a Lifetime ISA.

A Lifetime ISA allows you to save up to £4,000 tax-free each year. Much like a Help To Buy: ISA, the Government then adds on an additional 25% bonus.

Though both of these schemes make great options when saving for a house, there are a number of differences you may want to consider.

Below is a table comparing a Lifetime ISA and a Help to Buy: ISA to help you make the right decision for you.

 

How much do I need to save for a house?

Understanding house deposits

One of the most important parts of saving for a house is making sure you have enough money to cover the deposit.

Deposits are worked out based on a percentage of the value of the house you are buying, and the mortgage is based on what is left.

To put this into perspective, according to HM Land Registry, in 2018 the average house price in the UK was £232,552. So, a 5% deposit for a house of this price would be £11,627.60.

This means you would need to:

  • Save a minimum of £11,627.60 to cover the deposit
  • Borrow £220,924.40 from your mortgage lender

Although a 5% deposit makes it easy to get on the property ladder sooner, you should always aim to accumulate as large of a deposit as possible.  

Not only does this improve the likelihood of getting a mortgage, this also means your monthly mortgage repayments will be smaller because the bigger the deposit, the smaller the balance that’s left to pay off.

Understanding loan to value

LTV, or loan-to-value, is a phrase you may have come across whilst looking into buying your first home. LTV is usually a percentage figure that refers to how much mortgage you have, in relation to how much your property is worth.

Some mortgages have an LTV of 95%, which means you need a 5% deposit. Mortgages with a lower LTV usually come with lower interest rates and fees.

Other fees to prepare for

Whilst knowing how to save for a house deposit is important, there are a number of other costs that come with moving into your first home that you should know about.

Consequently, it’s a good idea to save additional money, on top of the money for your deposit, to cover the fees that may be incurred during the purchasing process.

Some of the fees you may be charged with whilst buying your first home are:

  • Booking fee
  • Stamp duty
  • Arrangement fee
  • Survey fees
  • Transfer fee
  • Valuation fee
  • Cost of moving possessions
  • Solicitor’s fees
  • Broker or advisor’s fees

Combined with your deposit, these fees can quickly accumulate.  Setting aside another pot of savings, perhaps in a regular savings account, is a good idea to ensure you have enough to cover all extraneous costs.

 

What else should I know?

Saving for a home can feel like a long and, at times, stressful process but it is worth the wait. Once you are in the habit of saving regularly, your nest egg will soon start to build up.

For more advice on being a first time buyer, refer to our first time buyer’s hub. Here, you’ll find all you need to ensure a smooth move-in to your new home; from what to expect from the house buying process to the mortgage application process. Alternatively, pop in to your nearest Newcastle Building Society to speak with a member of our team.