Step onto the property ladder with a lifetime ISA

First-time buyers should consider a Lifetime ISA with government bonus

Tuesday 17 December, 2019

Thomas Wheatley, a member of the Thomas Oliver mortgage broking team reviews whether first time buyers should open a Lifetime ISA as the help to buy ISA is no longer available.  

What is a Lifetime ISA and why is it suitable for first-time buyers?

As the Help to Buy ISA (HTB ISA) scheme is now closed to anyone who doesn’t already have an account, the Lifetime ISA is still available to first time buyers. The Lifetime ISA is a government scheme that can help you with your deposit for your first home. 

Government give a bonus towards the purchase of a first home with a Lifetime ISA

As with the HTB ISA the government will give you a bonus of 25% towards the purchase of your first home. But there are differences between this scheme and the HTB ISA. 

What is the difference between the Lifetime ISA and the help to buy ISA?

  1. You can save £4,000 per annum into the Lifetime ISA at the current rates. This also makes up part of your annual ISA allowance. Whereas with the HTB ISA you could make an initial deposit of £1,200 and were then able to deposit £200 per calendar month every year. This meant that you could benefit more in the short term from the HTB ISA, but in the long-term the Lifetime ISA provides greater benefits as you can save more into it each year. 
  2. You have to be aged between 18 and 40 to open a Lifetime ISA but for the HTB ISA you only had to be a first-time buyer. This obviously limits the suitability of the Lifetime ISA, as many 40-year olds have already purchased a home or had an interest in a home due to inheritance. 
  3. You are able to purchase a home up to a value of £450,000 anywhere in the country, whereas with the HTB ISA the limit was £250,000 and only increased to £450,000 within London. As a result, for many first-time buyers, especially those in areas with higher property prices, such as the south east, the HTB ISA wasn’t of any use to them. 

The Lifetime ISA gives first-time buyers greater flexibility

If you decide not to use the Lifetime ISA for a property purchase you are able to continue saving within the account and use it for retirement planning instead. Which gives people greater flexibility because if they find a property but don’t need to use the bonus for their deposit then they can keep the investment and get a bonus from the government at a later date. There are further rules around using the Lifetime ISA which mean it may not suit someone in this situation, but it does gives them a choice and we always recommend you take mortgage advice before opening a Lifetime ISA to make sure it is a suitable product for your financial circumstances.

Tracy Dove, Financial Adviser in Exeter, Devon and North London, said:

‘When we get first time buyers coming to meet us for mortgage advice, we consider their income and expenditure before helping them decide how much they can borrow to purchase their first home. One of the main issues for our first-time buyers is saving up enough deposit so they can purchase the home they want.  With the Lifetime ISA the government will give you 25% of the amount you have saved in it so it is a great way to save for your first home and it gives you the incentive to keep saving as much as you can towards your deposit.’

Tracy Dove, Mortgage Broker in Laindon & Basildon, continued:

‘In conclusion, the Lifetime ISA is another option to help people save for their house deposit just like the HTB ISA. Although in the short-term the benefit isn’t as great as the HTB ISA it is still a great way to get a helping hand from the government as you can save up to £4,000 each year. Therefore, I would urge any first-time buyers who did not open the HTB ISA to consider opening a Lifetime ISA, if the conditions apply to you. Even if you aren’t planning on purchasing a property for a number of years it might be worth taking out a Lifetime ISA now. Just remember that if you want to use the Lifetime ISA towards a house purchase you can only buy a property up to £450,000, which may limit your choice in London. If you are looking to purchase your first home in London or Hertfordshire, please come and talk to a Thomas Oliver mortgage broker. We offer a free initial mortgage consultation so we can review your financial circumstances and decide if you should take out a Lifetime ISA. Call our mortgage broking team now on 01707 872000. We always recommend that first time buyers see a mortgage adviser before they start house hunting, so we can work with you to decide how much you can borrow and what mortgage products are most suitable for you. This will inform you about which properties you can afford so you are not disappointed when you start looking for your first home.’

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