With the success of the Help to Buy ISA which closed in November 2019 first time buyers can be left wondering where to invest their savings in order to make their first step onto the property ladder, one option is the Lifetime ISA (also known as LISAs).
A first time buyer for this scheme is described as someone who has never owned a property, this includes property abroad or an inherited property.
These ISAs are created to help people aged 18 – 39 years save for their first home or as an investment towards their retirement but we won’t be focussing on that in this article.
How it works:
- No minimum investment set by the government (providers of the LISA may differ)
- Invest a maximum of £4000 up to the age of 50
- Government will pay a 25% bonus on a monthly basis up to a maximum £1000 in a tax year.
Example: if you put £1000 into your Lifetime ISA the government will add an extra £250 leaving you with £1250 at the end of the tax year
- Can use the Lifetime ISA towards a maximum purchase price of £450,000 and used for residential purposes only.
- Can be used in conjunction with another government scheme such as RTB, Shared Ownership and Help to Buy
It is important to note that you must have had the LISA open for a minimum of 12 months before you are able to use this towards a property.
One advantage of using a LISA towards a property is if the mortgage is going to be in joint names then each party can use their own ISA towards the property purchase.
Key differences between Lifetime ISA and Help to Buy ISA:
- Maximum contribution for a LISA is £4000 a year compared to £2400 for a Help to Buy ISA with bonuses paid monthly rather than at the end of the ISA as seen in the Help to Buy ISA.
- The maximum property purchase price for a LISA is £450,000 which is matched with a Help to Buy ISA if you are purchasing a property in London, out-with London the maximum purchase price is £250,000.
- If you decided to withdraw the money invested you would forfeit any bonuses on both ISAs, in addition to this you would also pay a penalty for withdrawing before the age of 60 on the Lifetime ISA.
- The great news is, in a competitive market, there is still a fantastic option for first time buys to put together a healthy deposit and make the first step in the property buying process.