Saving for your first home can be challenging enough without having to negotiate your way through the maze of different government initiatives.
Drawing on the expertise of Patrick Connolly, of Chase de Vere, we have put together this guide, highlighting the pros and cons of the Help to Buy ISA versus the newer Lifetime ISA (LISA), to help you choose the right one for your savings.
The obvious advantage of both types of account is that they enable you to claim free money from the government… but even with this very tempting carrot, they are not for everyone.
The main restriction of the Help to Buy ISA is that it is only suitable for first-time buyers, so you will not be eligible if you have owned property in the past, even if you are not currently a homeowner.
And if you are buying with somebody who has owned property in the past, only you as the first-time buyer will be able to claim the government bonus. However, you and your partner may still be able to open a Lifetime ISA to save for retirement.
Here we take a look at the features and differences between the two types of account:
How much can you save?
Help to Buy ISA: Up to £1,200 in the first month, then up to £200 per month after that, so a potential £3,400 in the first year, then £2,400 per year thereafter.
Lifetime ISA: Up to £4,000 per year.
What will the government give you?
In both cases, the government pays bonuses of 25%; it is how and when they are paid which differs. If saving as a couple, both parties can have an account – potentially doubling the bonus.
Help to Buy ISA: Maximum bonus of £3,000
Lifetime ISA: Maximum bonus of £1,000 per year up to the age of 50, when it stops – although you can continue to save into the account. This means a potential bonus of up to £33,000 is possible if the account is opened at age 18 and the full amount is paid in for the maximum period.
How and when is the bonus paid?
Help to Buy ISA: Bonus is paid, via your legal company, on purchase of a first home.
Lifetime ISA: Bonus is paid into the account monthly (originally it was paid annually).
The money is paid by the government on the day of completion, so it’s important your legal company is aware they may need to negotiate a lower deposit as exchange.
What can the savings be used for?
Help to Buy ISA: To buy a first home, up to £250,000 in England and £450,000 in London, £300,000 in Wales, £200,000 in Scotland
Lifetime ISA: To buy a first home up to £450,000, or for retirement from age 60.
When can you claim the bonus?
Help to Buy ISA: You need to have saved at least £1,600 to earn the minimum bonus of £400. So in effect, the account needs to have been open for at least three months (with the maximum amount paid in).
Lifetime ISA: To earn the bonus, the account must have been open for 12 months.
What are the age restrictions?
Help to Buy ISA: Can be opened by those aged 16 or over.
Lifetime ISA: Can be opened by people aged 18-40.
What penalties are there if you need the money for something else?
Help to Buy ISA: Bonus is forfeited if the money is used for anything other than a first property, or for a property over the price limit.
Lifetime ISA: The bonus is forfeited (ie you have to pay it back as you will already have received it) if you withdraw the money for anything other than a property before the age of 60, unless you have been diagnosed with a terminal illness.
How long is it available for?
Help to Buy ISA: New help to buy ISAs are only available until 30th November 2019 and you must claim your bonus by 1st December, 2030.
Lifetime ISA: Ongoing, although the government reserves the right to change the terms or withdraw the offer at any time.
How is your money invested?
Help to Buy ISA: Can only hold cash.
Lifetime ISA: Allows stocks and shares, and cash holdings.
Can you have both accounts?
Yes, but the Government bonus from only one account can be used to buy a home. You can transfer funds from a Help to Buy ISA into a LISA, but not in the other direction.
Patrick says: “If you transferred before 6th April 2018 then any transfer (for funds valued as at 5th April 2017) wouldn’t count toward your annual LISA allowance of £4,000. Any funds you built up from 6th April 2017 to when you transferred would count towards your annual LISA allowance of £4,000. So you could get a government bonus on the amount you transfer (valued at 5th April 2017) plus up to £4,000 you additionally invest into a LISA.
“However, from 6th April 2018 you can still transfer from a Help to Buy ISA to a LISA but all of the transfer will count toward your annual LISA allowance of £4,000.”
Patrick’s verdict on the Help to Buy ISA
"This is treated as a cash ISA and so the only way people can invest additional amounts into a cash ISA on top of the maximum permitted Help to Buy ISA limits is where there are ‘all in one’ Help to Buy and cash ISA products. However, these products don’t necessarily pay the best interest rates.
“The lack of a stocks and shares option also means that savers aren’t likely to benefit from competitive longer-term returns in addition to the benefit of the government bonus, unlike with the Lifetime ISA.”
Patrick’s verdict on the Lifetime ISA
“The Help to Buy ISA has perhaps been usurped by the Lifetime ISA and is already looking a bit like the poor cousin. However, while the Lifetime ISA seems attractive, there are some restrictions.
“For most people (but not everybody) LISA will be a better choice than Help to Buy ISA. The Lifetime ISA should be a great product for many younger people who want to get on the property ladder and so hopefully we’ll see more uptake and more products being launched.”
How readily available are the two accounts?
Patrick says: “It is mostly banks and building societies which offer Help to Buy ISAs and investment companies which offer LISAs. There is a limited number of providers, but there is probably just about enough. The biggest challenge is finding cash LISAs. Skipton Building Society is the only provider which offers an online cash LISA.”
When to choose the Help to Buy ISA
If you are aged under 18 or aged 40 or older
If you want to access your money within 12 months of setting up the account.
When to choose the Lifetime ISA
If you want to invest more than £200 each month
If you want to invest more than £12,000 in total
If you want the option of investing in stocks and shares and not be restricted to just cash
If you want to separately invest in a cash ISA
If you want the option to use some or all of the proceeds to save for retirement
If you want to purchase a property valued at between £250,000 and £450,000 outside of London.
Chase de Vere will offer a free initial telephone call or meeting with anyone who mentions Propertychecklists.co.uk.
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