The financial crisis, followed by the subsequent recessions, has made it harder than ever to hit our financial goals. In a new series of articles we will look at each generation, giving tips on how to cope with the lasting effects of the credit crunch and the recession.
This month we focus on twentysomethings, how have things changed since 2008, what issues does this generation face, and what do you need to know now to organise your finances effectively?
1. Getting a mortgage
Only a few short years ago getting a first time buyer mortgage was simple, there were literally hundreds of deals available with just a 5% deposit, and plenty of 100% mortgages on offer. Developers offered deals with 5% deposit paid and it was generally easy, some would say too easy, for first time buyers to get on the housing ladder.
Now though, the situation is completely different; mortgage lenders are generally insisting on a deposit of at least 10%, indeed a recent survey showed the average deposit from a first time buyer was 19%. Furthermore lenders are imposing ever tighter lending criteria.
So, some tips for first time buyers:
- Save hard to build up as large a deposit as possible, not easy given increasing student debt and record monthly rental levels
- Give a lender every reason to offer you a mortgage, see the next section about protecting your credit rating for more information
- Keep an eye out for government initiatives, the NewBuy and First Buy Schemes are starting to help more and more first time buyers get on the housing ladder, they come with strings attached, but they might be your only option
2. Protect your credit rating
There are certain things lenders look for when assessing a mortgage application, apart from saving a suitable deposit there are other things you can do to increase your chances of being accepted:
- Look after your credit rating, keep up with monthly payments on credit cards and loans, we’ve seen otherwise excellent mortgage applications turned down due to a single missed store card payment a few years ago
- If you don’t have any credit, apply for a credit card, use it and then repay the balance in full each month, this way you will incur no interest charges, but you will prove to a lender that you can manage your debt sensibly
- Make sure you get on the electoral roll, this gets you points on most credit scores
- Mortgage lenders like stability, if possible keep your number of house moves to a minimum and train and avoid frequent job changes; easier said than done in today’s job market!
3. Planning for retirement
Retirement might seem like a long way off, after all you’ve probably not even bought your first house, but despite it being a huge cliché, it’s never too late to start planning for retirement.
If your employer already offers a work place pension, and more importantly they contribute to it, then join it. Not doing so is effectively turning down free money, many work place pensions double your contribution, and some are even more generous. Most people can’t afford to pay enough into their pension anyway, so missing out on valuable employer contributions makes no sense whatsoever.
If your employer doesn’t currently offer a work place pension, to which they contribute, then hold tight. Auto enrolment is starting from October, which means that all employers, over the course of the next few years, will have to pay into a work place pension for you providing you also make a contribution.
Starting to plan for retirement is hugely important, ignore the bad press about pensions, most of it is simply scaremongering, and start getting what you are entitled to from your employer!
4. Time to save
The calls on a twentysomethings’ income are large, student loan repayments, the rising cost of renting, and paying into a pension, are leaving even less disposable income to save.
However, if it is possible to put some money to one side where can it work the hardest?
The obvious answer, which probably isn’t worth looking past, is the humble ISA (Individual Savings Account). If you are saving and plan to use the capital within the next five years, or so, we’d recommend using a Cash ISA as the capital can’t fall in value, which might happen with a Stocks & Shares ISA.
Sure, the interest rates on Cash ISAs are not currently great, but at least you’ll have access to your savings, the value can’t fall, and the interest you receive will be tax free.
5. Manage your debt
Many twentysomethings will have left university with debt, perhaps student loans, credit cards or overdrafts, all of which will have to be repaid at some point.
There first thing to emphasise is to make sure you keep up the monthly payments, missing payments, or paying late, will damage your credit rating and could easily stop you being able to get a mortgage.
Next, do everything you can to reduce the interest you pay.
Look for the best deals on overdrafts, and consider converting them to a loan, which may have a cheaper interest rate. The same is true of credit card debt, try and find 0% transfer deals, anything you can do to reduce the interest rate will help you to pay the debt of more quickly.
6. Take financial advice
Financial education in schools and universities is virtually non existent, so we’d suggest that any financial help and advice available should be considered.
There are various places where such help and advice could be found. We would naturally suggest that advice should be sought from an Independent Financial Adviser, but we recognise this comes at a cost, which might be too expensive for many twentysomethings.
There are other options though, your parents may be financially experienced, seek them out for advice, if they use an IFA see whether you can persuade them to offer you some free time.
The Internet is a huge resource of financial information, sure some of it needs to be sifted through and taken with a pinch of salt, but sites like ours, Moneysavingexpert, and Moneysupermarket, to name three, are at the forefront of financial learning and education.
If you are in your twenties balancing the various calls on your finances can be tricky.
We are of course here to help; our website offers a huge amount of information to help you make the right decisions, including comprehensive best buy tables to help your savings work harder for you.
Our team of Independent Financial Advisers in Nottingham are experienced in making savings and investments work harder for you. If would like advice on your savings or investments call one of our IFAs today on 0115 933 8433, alternatively enquire online or email firstname.lastname@example.org
Your property may be repossessed if you do not keep up repayments on your mortgage.
For providing mortgage advice we will charge an application fee of £300 and we may also be paid a fee from the lender, any fee paid by the lender will be disclosed to you. Alternatively we will charge an arrangement fee of 0.5% of the loan and refund to you any payment received by us from the lender.