The Taylor&Emmet Blog

Saving for your first home? What is a Lifetime ISA?

GET IT RIGHT FIRST TIME: Sarah is here to help first time buyers get to grips with the conveyancing process. This month, she discusses how to save up for a deposit using a Lifetime ISA…

If you are considering buying your first property, you may be looking for the quickest ways to raise a deposit.

Back in October, I outlined the Help to Buy ISA scheme, so I thought we’d now take a closer look at Lifetime ISAs – another government-backed way to boost your savings.

What is a Lifetime ISA?

This is a tax-free savings account that was launched in April 2017. It allows you to invest up to £4,000 per year to put towards your first home. Money can also be transferred from a Help to Buy ISA.

For every four pounds you save, the government will invest a pound, giving you a 25% bonus on your savings every year until you turn 50. It is applied to your account on a monthly basis and can be used on exchange or completion of a property purchase, up to the value of £450,000.

The account must be open for 12 months before you can withdraw any money, but anyone between the ages of 18 and 39 can take advantage of the scheme, giving you no excuse to put off saving for your first property!

If you are looking to buy a new home with your partner, you can both save in a Lifetime ISA, which is a great way to build up a deposit a little bit faster. Additional benefits include the ability to use this product for retirement savings.

Are any fees applied to Lifetime ISAs?

If you wish to take money out of your Lifetime ISA before it has been open a year, you will incur a withdrawal charge, so this may impose a restriction on when you can complete the purchase of your new property.

Likewise, if you use the money before you turn 60 for something other than the purchase of your first house, you will have to pay back 25% to the government, unless you are suffering from a critical illness. This means you could potentially end up with less than you invested, so you must be confident a Lifetime ISA is the right savings plan for you before signing up.

What is the difference between a Lifetime ISA and a Help to Buy ISA?

A Lifetime ISA is invested in stocks and shares, so does not offer the same stability as a Help to Buy ISA, which is a cash product. This means the value of your investment can fall as well as rise and you could potentially get back less than you paid in, depending when you withdraw the money.

Help to Buy ISAs were launched by the government in December 2015 and are available to any UK resident over the age of 16 who wants to save for a new home. Monthly payments of up to £200 can be invested, along with a lump sum of £1,200 when you open the account. It can be used towards the purchase of a first home up to the value of £250,000, or £450,000 in London.

It is worth mentioning that Help to Buy ISAs are being withdrawn and new accounts can only be opened up to November 30 this year. If you think this is the right savings product for you, don’t delay – you will be able to pay into it until 2029.

If you are a first-time buyer with a question about moving home, our residential property expert, Sarah Gaunt, would love to hear from you. Email: marketing@tayloremmet.co.uk

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