How Can The Lifetime ISA Help First Time Buyers?

MORTGAGES | 06.04.2017

On the 6th April 2017, the government’s Lifetime ISA was introduced to help young people save for a home and retirement at the same time.

The new initiative rewards savers with a 25% government bonus on top of their own contributions.

This means that for every £4,000 a person saves within the Lifetime ISA, the government will top it up with an additional £1,000 towards their first home or retirement.

If you’re thinking about opening a Lifetime ISA yourself, read on to learn more.

How much can I put in the Lifetime ISA?

Each year, you can deposit up to £4,000 of your own money into the Lifetime ISA. At the end of each year, the government will top up your savings by 25%. Unlike the Help to Buy ISA, where you can only place up to £200 in the account each month, the LISA lets you choose between regular deposits and lump sums.

What do I need to know if using the money to buy a home?

You need to have the Lifetime ISA for a full year before you can get the bonus to buy your home. The property you buy must be worth £450,000 or less.

Can I withdraw my money for things other than a home or retirement?

You can access your money at any time but if you withdraw the money before the age of 60 for something other buying your first home, you will be expected to pay a penalty on the amount you withdraw. This means you’ll take out less money than you put in.

Is the Lifetime ISA for cash or stocks and shares?

The Lifetime ISA will be available as a cash ISA or a stocks and shares ISA. You can hold a Lifetime ISA alongside ordinary cash and stocks and shares ISAs providing the money deposited within these accounts doesn’t exceed £20,000 in total. This means you can invest £4,000 within a Lifetime ISA each year while still having the ability to place a further £16,000 in other ISAs in the same year. As with all types of investing, your capital is at risk when you place it within a stocks and shares LISA.

Is the Lifetime ISA better than the Help to Buy ISA?

Some people may find that the Lifetime ISA is more financially beneficial than the Help to Buy ISA. However, whether it’s right for you will all depend on your individual circumstances. Features that make it more attractive than a Help to Buy ISA include:

The ability to invest/save a larger amount within the ISA
You can deposit lump sums within the account rather than being restricted to £200 a month
The bonus is paid annually rather than when you buy your own home
You can use LISA money to purchase a home worth £450,000 across the UK (compared to the Help to Buy ISA’s £250,000 cap for properties outside of London)

Features that could make it less attractive than the Help to Buy ISA include:

You need to have a Lifetime ISA for a year before you can use it to buy a home
If you need access to your funds for something other than a home or retirement, you will pay a penalty on the money withdrawn

Can I have a Lifetime ISA and a Help to Buy ISA at the same time?

You can have both a Lifetime ISA and a Help to Buy ISA at the same time but you can only use the bonus from one to buy your first home.

Is the Lifetime ISA better than a pension?

Many pension experts warn that the Lifetime ISA is unlikely to be as financially beneficial as a workplace pension. Although the Lifetime ISA rewards you with a 25% bonus on top of the money you save, a workplace pension will reward you with tax relief and employer and government contributions. Depending on your circumstances, you may decide to open a Lifetime ISA alongside your workplace pension. If you’re self employed, it may be wise to compare the Lifetime ISA to private pensions to find the most profitable option for you.

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