Coventry launches 4% interest savings account for first time buyers

Coventry Building Society has launched a savings account with 4 per cent interest, aimed specifically at aspiring first-time buyers.

The mutual fund’s First Home Saver allows savers to save up to £1,000 a month for up to three years.

The regular savings account is intended for people who are saving for their first home, for family members who want to support their children or for a family member who is buying their first home.

While not an easily accessible deal, it allows savers to withdraw their funds after 60 days’ notice.

Those who need to withdraw immediately will have to pay a fee equal to 60 days interest on the amount withdrawn.

Someone who puts the maximum £1,000 in the account over three years earns £2,266 in interest during that time.

According to Land Registry data, average house prices in England are currently £315,000.

This means new buyers will need to save £31,500 to buy with a 10 per cent down payment.

That doesn’t include the fact that the average first-time buyer also spends £9,780 on additional purchase costs, according to research from Coventry and the Center for Economics and Business Research.

These typically include moving costs, legal costs, appraisal costs, appraisal and mortgage costs, as well as new furniture and very often renovation or decoration.

Coventry’s deal can be opened online or by phone and interest is paid on an annual basis – rather than monthly.

At the end of the three-year term, the account and all funds are automatically transferred to an easily accessible account.

Coventry is also promising an additional £500 cashback to any new buyer who makes a purchase using a Coventry mortgage within five years of opening the savings account.

Whether this is a useful incentive depends on the rates offered and how they compare to the wider market.

>> View the latest mortgage interest that you can apply for here

Ian Biggs, head of product performance at Coventry Building Society, said: ‘New buyers are the lifeblood of the property market and we want to provide all the support we can to help them achieve their dreams.

“We understand that taking that all-important first step on the housing ladder can be challenging with rising home prices and the enormous effort involved in saving for a down payment.

Our First Home Saver pays a market leading interest rate of 4 per cent for new buyers with the flexibility to change the amount deposited into the account up to a maximum of £1,000 per month.

“This account is also suitable for mom and dad’s bank and other family members. Parents often help their children climb the property ladder and if their child takes out a mortgage with us they can receive a bonus of £500 as a result.”

Is it a good place for first-time buyers to save?

This is certainly a standout offer for anyone currently saving for a down payment on their first home.

The 4 percent rate is better than what an easily accessible deal or notification account is currently paying.

The best easily accessible deal pays 3.35 per cent on balances up to £5,000, while the best cancellation account pays 3.55 per cent with 90 days notice.

>> View the best low-threshold savings rates here

The 60-day cancellation period shouldn’t be a barrier to most purchases either, as the legal inquiries and mortgage application can take months. This should give buyers enough time to withdraw their funds without incurring a penalty.

However, anyone currently saving to get a foot on the property ladder should also consider using a Lifetime Isa (Lisa).

Savers under 40 can open a Lisa and until they turn 50 the government will put in £1 for every £4 they save, giving a £1,000 bonus on the maximum £4,000 you can save each year. This essentially gives their savings a 25 percent boost before interest is even taken into account.

That money can either be used for a down payment on a first home or withdrawn from age 60 to help fund retirement.

However, there are two crucial rules to keep in mind. Firstly, whether buying individually or as a couple, the value of the property purchased must not exceed £450,000.

It is also possible to come off worse if someone decides to cash in the Isa before the age of 60 without buying a first home. There is a penalty of 25 percent on the withdrawn amount in this case.

While there are only a handful of savings providers offering Lisa deals, they are fairly competitive.

Moneybox offers the industry-leading 3.5 percent rate, consisting of a base rate of 2.75 percent and a fixed one-year bonus rate of 0.75 percent.

If the Lisa isn’t an option, perhaps because someone is already maxing out their annual stipend or planning to buy above the £450,000 threshold, then Coventry could be a good option.

However, the account is not without limits. While the £1,000 monthly limit is perfect for anyone looking to set aside their income on a regular basis, those who have already built up a pot won’t be able to take advantage of the higher rate.

Instead, they will have to trickle their savings from their current provider into Coventry every month.

There will also be many savers who put aside much smaller amounts than € 1,000 every month.

Under such circumstances, they may discover that better rates are available based on how much they want to put away each month.

Bank customers of NatWest and RBS, for example, can access their Digital Regular Saver account and pay 6.17 percent, allowing savers to withdraw funds at any time.

This is paid on credits of up to £5,000, with depositors able to stash away up to £150 each month. Anything saved above £5,000 earns just 0.65 per cent.

Someone who deposits a maximum of € 150 each month for 12 months will earn € 60 in interest after one year.

Someone who pays £150 every month for the next two and a half years will earn £366 in interest during that time. Meanwhile, £150 a month saved in Coventry’s deal will earn only £236 in interest during that time.

First Direct has a regular savings deal that pays out at 7 per cent, allowing deposits between £25 and £300 per month for a period of 12 months.

Someone who saves up to £300 a month in this account for a year will earn £135 in interest. However, the downside is that they cannot withdraw their money until the 12-month period has passed.