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Guide

Lifetime ISA: Buying your first home

By Share to Buy
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Lifetime ISAs and Help to Buy ISAs can help first time buyers

If you’re hoping to get on the property ladder, you may wish to consider an Individual Savings Account (ISA) to help boost your savings. With house prices soaring and the cost of living at an all time high, many first time buyers will feel that saving for a deposit is an impossible task.

However, budding buyers could benefit from opening an ISA to help purchase their first home, whether that be on the open market or through home-buying schemes such as Shared Ownership and the Help to Buy equity loan.

Lifetime ISA

What is the Lifetime ISA?

A Lifetime ISA (LISA) allows you to save up to £4,000 every tax year – either paid gradually or as a lump sum – to put towards your first home or retirement, with the government adding a 25% bonus on top of what you save, up to a maximum of £1,000 per year.

How does the Lifetime ISA bonus work?

You can save up to £4,000 annually, with the government topping this up by 25%. This means that if you save the full £4,000 in a year, you would receive an extra £1,000, as well as earning tax-free interest on whatever you have saved. It’s worth noting that you would only receive the bonus on contributions, not on cash interest or investment growth.

The bonus is paid directly into the LISA on a monthly basis, if you have contributed that month, but it can take up to nine weeks to arrive in your account.

Am I eligible for a Lifetime ISA?

You must be aged over 18 but under 40 years old to open a Lifetime ISA. If you’re coming up to the age of 40, you can still open a LISA and continue to put money into the account until the day before your 50th birthday. Once you turn 50, you will no longer be able to pay more into your account, but you will continue to receive interest on your savings.

Can I withdraw money from a Lifetime ISA?

Lifetime ISAs are specific savings accounts used to help people either get onto the property ladder or save for later in life, so there won’t be an additional fee if the savings are used for one of these reasons.

Under normal LISA rules, you can take some or all of your cash out before the age of 60, even if you’re not buying a property, but you will be charged 25% of the amount withdrawn. Therefore, it’s best to only use a LISA if you’re sure that the savings will be used towards either the purchase of your first home or for retirement. Additionally, the savings can be withdrawn charge-free if the account holder is diagnosed with a terminal illness.

As with normal ISAs, interest rates on LISAs can also go up and down. However, you aren’t locked into staying with your current provider, and you can choose to transfer your savings to a provider who is offering a better rate. 

Help to Buy ISA

How do I open a Help to Buy ISA?

As of November 2019, you can no longer set up a new Help to Buy ISA. However, if you opened an account before the ISA closed to new applicants, you can still use your savings towards buying your first home. You can pay into the ISA until November 2029, and can claim the government bonus until November 2030.

How does the Help to Buy ISA work?

With the Help to Buy ISA, you can pay in up to £200 each month. The government will boost your savings by 25% meaning that for every £200 you save, you’ll receive a bonus of £50 – with a maximum bonus of £3,000.

The accounts are also available to each first time buyer, not each household, which means that if you’re buying with another person who also has the Help to Buy ISA, you could receive a bonus of up to £6,000.

How do I use the Help to Buy ISA?

You can use your savings and the government bonus towards buying your first home, and your solicitor or conveyancer will apply for the extra 25% during the purchase process.

To be eligible for the ISA bonus, the home you buy must:

  • Have a purchase price of up to £250,000 (or £450,000 in London).
  • Be the only home you own.
  • Be where you intend to live.

Can I withdraw money from a Help to Buy ISA?

You can withdraw or transfer money from your account at any time without a fee. Any money that you withdraw from the account will lose its tax-free status and if you choose to repay this back into your Help to Buy ISA, this will count as your monthly contribution which is capped at £200.

The bonus is worked out on the closing balance of the account so if you take out any money before closing your Help to Buy ISA, the bonus won’t apply to the amounts which you have withdrawn.

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