Couple who used their Lifetime ISA towards a first home

 

The Lifetime ISA and Help to Buy ISA are two types of ISAs set up by the Government to help first-time buyers save for a first home.

Housing in the UK is arguably becoming less affordable for young people looking to move into their own property. The Government are aware of the difficulties, with the introduction of 95% mortgages with a 5% deposit launched in April 2021 and offering first-time buyers more options to purchase a home such as shared ownership. Initiatives like the Lifetime ISA and Help to Buy ISA also help make housing more affordable for savers. Did you know the average cost of a first house in the UK is £220,000? And that the average age of a first-time buyer is 34? For many young adults in the UK, the prospect of saving up for a first home is daunting and looking to become a homeowner is a huge milestone many will encounter in their lifetime.

As a first-time buyer, you may be wondering if these ISAs could be useful for helping to step onto the property ladder. You may have heard the names of these products before and if you missed out on the Help to Buy ISA, a Lifetime ISA also aims to make saving for your first home more affordable.

If you are looking to enter the housing market, the Lifetime ISA remains an affordable option if you did not open the Help to Buy ISA. Our article will take you through everything you need to know about a Lifetime ISA and its differences with a Help to Buy ISA, so you are ready to save for your first home.

 

 

Lifetime ISA

Help to Buy ISA

Maximum annual contribution limit

 £4,000

 

 £2,400 (£3,400 in the first year)

Limited to monthly contribution maximum of £200 (£1,200 in the first month)

Eligibility

UK resident

Age: 18 - 39

UK resident

Age: 16+

Type of investments

Stocks and shares or cash Cash

Ideal time period to save

Short-term for cash (1-5 years)

Medium-term for stocks and shares (5+ years)

Short-term for cash (1-5 years)

 

Government bonus

Yes - 25%

The bonus is automatically added after you make contributions

You can receive a maximum bonus each tax year of £1,000.

Yes - 25%

The bonus needs to be claimed during the purchasing process

You can receive a maximum bonus of £3,000

Available to open today

Yes - find out more No

Who/What are you saving for?

Yourself - first home or for later on in life Yourself - first home

Help to Buy ISAs

Help to Buy ISAs are tax-efficient savings accounts used to help first-time buyers save for their first home. It is a type of Cash ISA and once opened customers can use their Help to Buy ISA towards purchasing a property in the UK worth up to £250,000, or £450,000 in London. They were available to UK residents aged 16 or over.

You can no longer open a Help to Buy ISA. However, you are still able to contribute to your Help to Buy ISA if you took out the plan before the closure deadline in November 2019. If you have a Help to Buy ISA, you have until November 2029 to use your savings towards your first home. A Lifetime ISA is the alternative and you can open one today >

If you took out a Help to Buy ISA, you would have been able to contribute £1,200 in the first month of the Plan opening, and a maximum of £200 each month thereafter. In the first year with your Help to Buy ISA, you could save up to a yearly allowance of £3,400. After that, you can contribute up to a maximum of £2,400 each year. Help to Buy ISAs also offer the flexibility for being able to encash money when you need to access your savings.

When you are ready to use your Help to Buy ISA towards a home, you will benefit from a 25% Government bonus which you will need to claim for in the buying process, between exchange and completion of the property. The Government bonus is up to a maximum of £3,000. If you have a Help to Buy ISA, the Government bonus must be claimed by December 2030.

 

Lifetime ISAs

Lifetime ISAs are tax-efficient savings accounts available for UK residents aged 18 – 39. Introduced by the Government in 2017, the Lifetime ISA is beneficial if you’re looking to save towards buying a first home, with a 25% Government bonus for every contribution you make. Unlike the Help to Buy ISA, you can also use the Lifetime ISA to save for later on in life, where the money can be accessed after your 60th birthday.

There are two types of Lifetime ISAs available – Cash Lifetime ISAs and Stocks and Shares Lifetime ISAs. Help to Buy ISAs were only available as Cash ISAs. By choosing to open a Stocks and Shares Lifetime ISA, there is more potential for growth rather than saving in cash. Generally, if you are looking to save for more than 5 years, you have more potential for greater returns when you invest in the stock market. Of course, shares do go up and down and you could get back less than you put in.

With a Lifetime ISA you can also contribute more into the Plan, meaning you could reach your savings goal faster for making your dream home a reality. The annual contribution allowance is currently £4,000. This counts towards your overall ISA limit of £20,000 for the tax year.

For Help to Buy ISAs, you can only contribute up to £3,400 after the first year and are limited to saving £200 each month afterwards. Also, for a Lifetime ISA the 25% Government bonus is added automatically to your Lifetime ISA savings, so there is no need to claim for this. If you meet the maximum allowance of £4,000 each year for the Lifetime ISA, you receive a £1,000 bonus year from the Government. The Help to Buy ISA bonus has an overall maximum of £3,000 when you claim to use this towards a first home.

A Lifetime ISA can only be used towards a first home once it has been opened for 12 months. As the Lifetime ISA limit applies to each individual, you and a partner (if eligible) can have a separate Lifetime ISA and combine your savings to purchase a first home together, worth up to the value of £450,000 in the UK. With a Help to Buy ISA, you can only save for a UK home worth up to £250,000, or £450,000 if in London. Learn more about how to use your Lifetime ISA towards a first home > 

The main difference with the Lifetime ISA is the government penalty if the money accessed is not used towards a first home or after your 60th birthday. When this happens, you will pay a government penalty of 25% on the encashment amount, and you may get back less than you paid in. There is no government penalty if you encash money from your Help to Buy ISA.

 

Our Stocks and Shares Lifetime ISA

Our Forester Life Lifetime ISA is a Stocks and Shares ISA.

Our professional fund managers at Schroders will make investment decisions for you. With a risk-controlled and sustainable approach, no more than 60% of your money will be invested in shares – helping to mitigate your savings against market fluctuations but giving the opportunity for growth. Find out more about our Foresters Stakeholder (Schroders) Managed Fund >

As with all stock market investments, the value of the ISA can fall as well as rise, and you may get back less than has been paid in.

By saving into a Lifetime ISA instead of a workplace pension, you could lose the benefit of employer contributions and the value could affect any entitlement to means tested benefits. If you make an encashment before age 60, other than to purchase your first home, you will pay a government penalty of 25% on the encashment amount, and you may get back less than you paid in.

At Foresters Financial we also offer a personal financial planning service, where you can discuss your options with a Financial Adviser through face-to-face or video appointments. As they are paid directly, our Advisers will not charge for any advice given. Request a Financial Adviser >

With our ISA you also have the option to open both a Lifetime ISA and Stocks and Shares ISA within one Plan. Learn more about an ISA with Forester Life > 

 

I have a Help to Buy ISA and Lifetime ISA, can I use both towards a first home?

If you have a Lifetime ISA and a Help to Buy ISA, you will only be able to claim the Government bonus from one of these Plans towards purchasing a first home. The money in a Lifetime ISA can also be used for later on in life.

 

Can I transfer my Help to Buy ISA and/or Lifetime ISA to another provider?

It is possible to transfer your Help to Buy ISA or Lifetime ISA to another provider. You should check with your new provider on fees if you wish to make a transfer.

Please note we do not currently accept Lifetime ISA to Lifetime ISA or Help to Buy ISA to Lifetime ISA transfers. If you have a Cash ISA or Stocks and Shares ISA with another provider, you can transfer to our Lifetime ISA.

 

 

If you have more queries about ISAs as a form of savings, our Guide to ISAs article could be useful. If you're ready to save for your first home, open a Lifetime ISA online with Foresters Financial today.

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