Save now and buy later

The struggle of homebuying facing millions of young people saddled with student debt could be easier by 2020 as some £2.4 billion invested in Child Trust Funds (CTFs) becomes available, allowing the first generation of trust-fund babes to purchase their first homes much earlier than today’s first-time buyers.

About 3.2 million CTFs have been opened since they first became available in 2005. This was when the Government made available £250 for every child in an account that can be topped up monthly. No one can access the account except the child, when they turn 18.

Research carried out by the Social Issues Research Centre for The Children’s Mutual, one of the largest CTF providers, reveals that although the average first- time buyer will probably need a deposit of £18,800 to buy a home by 2020, a fully-topped up CTF could provide a cash lump sum at maturity of £37,100. This assumes that the full £1,200 a year allowable top-up is added to the CTF and the investments show an average return of seven per cent a year - not unrealistic if the money is invested in an equity-based fund.

Of course, not every parent is able to top up their children’s CTFs but The Children’s Mutual reports that more than half of parents do add money, and other family members also chip in.

Figures from HM Revenue & Customs, which runs CTFs, show that the average monthly amount currently being saved by direct debit is £23.41 (£281 a year). Even at this relatively low rate of saving, by the time the child reaches 18 and the CTF matures, they could receive a lump sum of £9,500.

At the moment, the average first-time buyer is aged 29, pays £131,000 for their first home, borrows 90 per cent or £118,000, puts down a deposit of £13,000, has an income of £35,400 a year and spends 20 per cent of disposable income on mortgage interest, according to figures from the Council of Mortgage Lenders. For more information on CTFs, visit www.childtrustfund.gov.uk.