From April 6th 2017 a new ISA will be made available called the Lifetime ISA (LISA). This is the government’s answer to two separate issues; the struggle first time buyers experience to save the deposit necessary to buy their first home, and the lack of adequate pension saving for retirement. However in this article I will mainly focus on the use of this for first time buyers.
The Help to Buy ISA provides a government top up of 25% on savings in the ISA subject to limits. Similarly the LISA need will still provide this 25% top up, however the rules applied to these are a little different. The government hopes that by getting first time buyers into the ISA’s initially whilst saving for a house, they can get into the routine of saving regularly and hopefully continue using the ISA to save for retirement as well.
So what are the main differences between the new LISA in comparison to the Help to buy ISA? From a first time buyers perspective if you are looking to purchase a home within the next twelve months the LISA is not for you, as you need to have it open 12 months before the bonus is paid out. Whereas the Help to Buy ISA’s have a minimum amount of £1,600 that has to be saved before they will pay out your bonus. This can be achieved within three months (a £1,200 lump sum at the beginning followed by the maximum monthly contribution of £200 for a following two months). So if time is not on your side a Help to Buy ISA is going to be the better option, however these will only be available to new savers until 30th November 2019.
The new LISA has improvements compared to the Help to Buy ISA, as you can save up to £4,000 a year in comparison to only £3,400 in the first year of the Help to Buy ISA followed by £2,400 per year after that. As well as this you can put lump sums into the LISA whereas apart from the initial lump sum in the Help to Buy ISA you can only invest the regular monthly contributions. This may be particularly good for people who get an annual bonus and want to put a higher amount in one specific month, or those who have inherited a lump sum. The maximum bonus achievable in the LISA is also a lot higher than the Help to Buy ISA too, if you continue to invest for the full 32 years (as these are available between age 18 and 40), you could get a maximum bonus of £32,000 in comparison with only £12,000 in the Help to Buy ISA.
If you are looking to begin your journey onto the property ladder it is always a good idea to start this by seeking independent financial advice.
Sammy McCann BSc(Hons), Cert CII(MP)
10th April 2017