If saving for your own house seems like an impossible dream, help is at hand from the government which you need to know about, says Homefocus editor Victoria Galligan…
In November 2019 the Help to Buy ISA was replaced by the Lifetime ISA, which can help first time buyers put away up to £4,000 a year and receive a 25% government bonus.
Although it’s only just replaced the Help to Buy ISA, the Lifetime ISA has been available from April 2017 so many people have been taking advantage of this pretty generous offer from the government for a while now. But is it the right way for you to save for your first home?
Here, Homefocus has put together a guide to show how the Lifetime ISA can help you get onto the property ladder sooner than you thought…
Am I eligible?
Basically, if you’re between the ages of 18 and 39 and are a UK resident, and planning to save for your first home, you can open a Lifetime ISA. In addition, members of the armed forces serving overseas, or their spouses/civil partners living in the UK can open one too. The Lifetime ISA is opened by one person and if you’re in a couple or saving with friends or family members, you can each open your own to pool into funds for a home later.
How much can I save?
You can save up to £4,000 a year until you are 50 years old – so the maximum someone could save from the age of 18 is £32,000. This works out at £333 a month if you decide to pay into your ISA from your monthly earnings.
Bear in mind, if you have other ISAs there is a limit to how much you can put into ISAs – the overall savings limit for the 2019-2020 tax year is £20,000. Any contribution to a Lifetime ISA counts towards this. You can also transfer you Help to Buy ISA into a Lifetime ISA – but it will count towards your £4,000 annual limit.
How much will the government give me?
This is the good part! The government bonus stands at 25% – this is paid on thee total amount paid into the Lifetime ISA – not including investment interest or investment growth. So an 18-year-old who saves until they are 50 and then buys a house would receive a £32,000 bonus – or £1,000 a year.
Even if you only manage to save a total of £1,000 before you buy a house, a £250 bonus is not to be sniffed at – it would pay towards legal fees for example so it’s definitely worth saving as soon as possible.
How do I claim the bonus?
You will have a Lifetime ISA manager which will claim the bonus for you and it will be added automatically into your account. Your Lifetime ISA manager is the bank, building society or asset manager where you open your Lifetime ISA.
The bonus will be added to your account every month.
Are there any other terms I should know about?
In short, yes. For example:
– your first home can only be up to the value of £450,000
– the home must be in the UK and be your only home, and you must live in it
– the home must be purchased with a mortgage
– to get the bonus, you need to leave some money in the Lifetime ISA for a full 12 months after you first save into the account
– if you’re buying with someone who isn’t a first-time buyer, you can still open a Lifetime ISA and use the bonus towards your home
– a government charge of 25% will apply if you withdraw any money early or for any other reason than buying your first home (so you’ll effectively lose the bonus). Exceptions to the charge apply for those with a terminal illness.
– after you turn 60, the money you withdraw is restriction-free. If you’re not ready to buy you can transfer your Lifetime ISA into another type of ISA, for example.
How do I open a Lifetime ISA?
If you’re all ready to start saving, and meet the criteria above, then contact your bank or building society to see how they can help. You can apply online in most cases.
Remember the 25% bonus is the government’s contribution – some banks will offer an additional tax-free interest rate so shop around.
A free £1,000 a year towards buying your first home is a pretty good offer – Homefocus’s advice is to take it while you can, even if you just start the ball rolling with a small deposit.
For more information on the Lifetime ISA, see lifetimeisa.campaign.gov.uk