Important information: The value of investments and the income from them, can go down as well as up, so you may get back less than you invest.

Recently, my sister called to ask me for some tips on buying a house. My heart sank. I guess this is how our parents felt when they told us Father Christmas doesn’t exist.

She’s 22, on a decent income, and lives with our parents about 20 minutes from Coventry. All in all, she should be well on the way to buying a house. But then, it’s not that simple.

I had no easy answers to offer her. Instead, I asked her five questions I think she should consider before she gets too attached to the idea of her dream house.

1 - Do you need to buy?

The UK has a pretty unhealthy relationship with home ownership. Boomers are happy to tell you about how they bought their first house for a tenner and you could too if you stopped buying avocados.

This (unfortunately) isn’t the place to tell them why they’re wrong. Safe to say that getting onto the property ladder isn’t as simple as it used to be.

Clearly there are benefits to ownership. A house can certainly make for an excellent long-term investment.

But there are also unhelpful emotional pulls that lead people into buying earlier than they should.

One is the idea that buyers are more financially responsible than renters. Another is that you haven’t “made it” until you’ve bought.

In reality, renting is quicker, easier, and more flexible. It can be the perfect stopgap when buying doesn’t suit.

While there are good reasons for buying, doing so just because you think you should isn’t one of them.

2 - Where do you want to live?

Location is often determined by factors beyond our control. My sister is pretty set on staying in the Midlands because her friends live there and her job isn’t flexible. If you do have the flexibility to uproot, however, then give it some serious thought.

The difference in prices across the UK is staggering. This won’t be the answer for everyone, but it may be something to bear in mind.

3 - Can you afford it?

Without going into the ins and outs of how deposits and mortgages work (the Money Saving Expert has some excellent info on this), you’re likely to need a minimum 10-15% deposit to get a good choice of mortgages. The bigger the deposit you pay, the better the mortgage you’ll get. That means you’ll end up paying a lower interest rate and less money over time.

If you realise you can’t afford that right now, ask yourself two further questions…

4 - Can you save?

According to research from Barclays the average time first-time buyers take to save is 8 years.1 If you haven’t already and you’re aged between 18-39, consider opening a Lifetime Individual Savings Account (LISA). Here, you can save up to £4,000 per year, with the government adding an additional 25% on top (so £1,000 per year if you use the full allowance). Note that any money saved in a LISA can only be used for buying a property up to £450,000.

You may then want to save what you can of the remaining £16,000 of your £20,000 annual ISA allowance too. Investing in a tax-efficient wrapper like an ISA can be a good way to save over the long-term.

5 - Can you wait?

Remember, buying a house isn’t the be all. If you’re squeezing yourself dry to afford one, it may be worth waiting a little while to get things straight. Doing so will give your investments time to grow, and hopefully catch up on those pesky house prices.

While prices have soared in recent years, they may soon start to cool. Rising interest rates will push up mortgage rates, which should slow demand and ultimately bring prices back down.

Of course, there’s no guarantee that will happen. But price rises can’t continue to rise at this rate indefinitely. As before, waiting for the time that suits you may be better than diving in head first.

1 Barclays Mortgages’ First Time Buyer Index, 7 March 2022

Important information: Investors should note that the views expressed may no longer be current and may have already been acted upon. Tax treatment depends on individual circumstances and all tax rules may change in the future. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser.

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