The Money Saving expert reveals how they can help you to get on the property ladder.
He said: “Are you dreaming of owning your first home? Well there’s £1,000s of free cash available to help you save for it, and it’s just got a whole lot better.
“This is all about Lifetime ISAs (LISAs), where it, and its cousin the Help to Buy ISA are no-brainers for anyone saving for a first property, as an unbeatable 25 per cent bonus is added towards the mortgage deposit ie, £250 on every £1,000 saved.”
What is a lifetime ISA?
It’s a tax-free savings product that lets you save up to £4,000 a year in it, either as a lump sum or in dribs and drabs.
The state adds 25 per cent on top, until you turn 50 (so a max of £1,000/yr free).
What do you need to know about the lifetime ISA?
1. You must be aged 18 – 39 to open one (ie, the day before your 40th birthday). The bonuses are then paid until you’re 50. So, 32 years of the maximum bonus is £32,000.
2. It’s usable by first-time buyers for mortgages on a UK residential property £450,000 or under.
A first-time buyer is simply someone who’s never owned (or part-owned) a home. You also get the bonus if you wait until age 60 (ie for retirement savings) but I’ll not focus on that here as pensions beat it for most.
3. You have to wait a year after the LISA’s opened to buy. If you’re buying sooner, look at Help to Buy ISAs (more on that below). Yet if you’re a long time from getting a house, and not sure you’ll want to do it, you may as well just open one now with £1 to get the clock ticking.
4. If a couple both of you can save up to £4,000/yr. LISAs are an individual product so you can both have one. If you’re buying with someone who isn’t a first-time buyer, you can still get a LISA and get the bonus.
5. There’s a penalty if you withdraw cash for anything else. There’s a 25 per cent penalty for anything other than first-home buying or retirement. In practice that means for every £1,000 you put in you only get back £937.50.
So why has it just got a whole lot better?
Ever since these launched in June 2017 the Skipton BS has been the best buy LISA paying 1 per cent. But that’s finally just been pipped by Newcastle BS paying 1.1 per cent AER variable.
While the rate isn’t that high, don’t let it put you off, as it’s all about the 25 per cent bonus. The interest is just the icing on the cake. If you’re already with Skipton BS, you can’t yet transfer in to Newcastle BS – so it’s only for new savers.
The LISA’s big advantage is you can put far more in, so you can get a bigger bonus. The Help to Buy ISA is more flexible, as you can use it quicker, and withdraw without penalty. So in summary…
– If you’ll definitely buy a home, for less than the LISA maximum of £450,000, are aged 18 to 39, and you won’t do it within a year, go for a LISA as you will get a bigger bonus.
– If you are older, need to buy quickly or you’re not 100 per cent sure you’ll buy at all then it’s safer to stick with (or get) a Help to Buy ISA.
For full details on how it works, including whether you’d be better off with a Help to Buy ISA, see Martin’s top ‘Lifetime ISA’ guide, but here’s a brief summary.
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