In a perhaps surprising move to return to the way things were back in the 1970’s and 1980’s, Abbey is introducing a new savings account for first time buyers.
The First Home Savers Account is a way for potential first time buyers to prove that they can set aside a regular amount each month that would meet a mortgage repayment.
The account pays an interest rate of 8 per cent at present and is only open to those between the ages of 16 and 35. Savers must deposit between £100 and £300 per month. An account can be opened with an initial deposit of as little as £100 or as much as £5,000. There is no time limit and no penalty if a withdrawal is made, however, a partial withdrawal is not allowed. Savers should also note that if they miss paying in during a particular month, then the interest rate drops dramatically to just 0.10 percent that month.
Once a deposit has been saved up, savers can have a mortgage interview with the Abbey, although they are not obliged to take out any of its mortgage products. The maximum that can be saved is £50,000.
Abbey has said that it wishes this product to remain competitive, however, the interest rate is variable and Abbey is making no guarantees that it will not drop.
Whilst this scheme is a good way to save, the onus is on customers to ensure they have the best deal. Another option is to use an ISA, a tax efficient way to save where savers are not committed to saving each month, and as the average interest rate is around 6 percent, this may present a better deal with the tax-efficient status, dependent upon how much you wish to save each year as the amount a saver can put into an ISA per tax year is limited.
