Help to Buy ISA VS Lifetime ISA

So, you are buying your first house – congratulations! First time buyers are often in a really good position when it comes to buying a house.

Help to Buy ISA’s and Lifetime ISAs are a great way to help you start saving and help utilise what you have saved. Here at Oliver and Co, we are able to help you with your ISA needs, questions and queries.

Help to Buy ISA

What is a Help to Buy ISA?

A Help to Buy ISA (HTB ISA) is a government scheme designed to help first time buyers save for a house deposit in order to buy their first home.

Whilst you can no longer open a HTB ISA, as HTB closed new accounts back in November 2019, if you already have one you can continue to save into the account up until November 2029.

The idea is that the Government will top up any contributions you make into the ISA by 25%, so for every £200 you save you will get £50 free from the government, up to a limit of £12,000 with a £3,000 bonus, totaling a deposit of £15,000.00 if you max out the account.

Not only do you get the 25% government bonus, but you are also able to claim interest on the amount in the ISA each month. Interest on the HTB ISA is generally a lot higher than your standard ISA and so this, in addition to the bonus can really help improve your savings.

What are the conditions:

There are some conditions applicable when you open and when you use the HTB ISA.

1. Only available to First Time Buyers, living in the UK and buying your main residence (the only home you own and where you intend to live) with a mortgage.
2. You can only have one HTB ISA per person, although a couple can have one ISA each
3. The maximum monthly saving limit is £200 although in your first month you can make an initial £1000 lump sum payment and your £200 monthly payment (totalling £1,200 in your first month.
4. You must have at least £1,600 in the account to claim the bonus
5. You cannot claim the bonus if your property is more than £250,000 (outside London) or £450,000 (Inside London)
6. You can only claim a maximum amount of £3000 from the government (equivalent to £12,000 worth of savings)

What do I have to do:

Your solicitor will guide you through what you need to do in order to claim the bonus:

1. You need to have some help to buy ISA opened before November 2019 which has more than £1,600 in the account.
2. At the point of exchange and completion, your solicitor will ask you to provide your HTB closing statement. You will need to go into branch and have the ISA closed, the amount you have saved will be paid into an account of your choice and they will provide you with the closing statement.
3. You must provide your closing statement and a HTB declaration to your solicitor, who will claim the bonus on your behalf via the HTB Online Portal.
4. Once HTB have confirmed the details they will make the bonus payment to your solicitors account and your solicitor will put this amount towards the costs of the conveyancing process, but will not be used towards the initial deposit on exchange of contracts

Lifetime ISA

What is a Lifetime ISA?

A lifetime ISA (LISA) is a government scheme designed to help you save for your first home or to help you save for later life. You are still able to open a LISA and the most common providers are: Moneybox, Newcastle Building Society and Skipton Building Society.

The LISA lets you save up to £4,000 per year with the government adding a 25% bonus of £1,000, up to a limit of £33,000 if you open the account at 18 and max out the account.

You can either pay in a lump sum of £4,000 per year or contribute to the ISA with monthly installments. With the LISA, you can still contribute into other ISAs with other providers so long as you do not exceed the tax limited for the tax year (£20,000)

What are the conditions:

There are quite a few complex conditions applicable when you open and when you use the LISA, a few of the basic conditions are listed below:

1. You must be over 18, but under 40 to open a LISA
2. You can put in £4,000 each year until you are 50 and you must make your first payment into your ISA before you are 40
3. The LISA limit of £4,000 will count towards you annual ISA limit for the tax year
4. After 50, you will not be able to pay into the ISA or earn the 25% bonus, but will still earn interest on the amount in the ISA
5. You must be a UK resident and you must buy the property with a mortgage
6. The property being purchased must be £450,000 or less
7. The LISA must be open for more than 12 months before you can use it to buy a property

What do I have to do:

Your solicitor will guide you through the process of requesting your LISA funds as you can only withdraw LISA funds in certain circumstances without incurring a withdrawal charge as each LISA provider’s process is slightly different.

1. You need to purchase the property at least 12 months after you make the first payment into the LISA
2. You will need to complete an Investor declaration given to you by your LISA provider. You will need to indicate on the declaration how much you would like to withdraw/use towards the purchase of the property and provide the property details
3. Your solicitor will complete their Conveyancer Declaration and will send this along with your completed Investor Declaration to the lender for review 30 days prior to completion.
4. The lender will then confirm all the details and will make payment of the requested amount into your solicitor’s account.
5. The balance can then be used towards the deposit and the LISA can remain open.

Summary

In summary, both the HTB ISA and LISA are both great ways to save for a house deposit if you are a first-time buyer. The HTB ISA is very much a straightforward process whereas the LISA is a more complex savings account with many options and ways to save via cash and or stocks. The LISA tends to beat the HTB ISA in terms of what it offers, but it is much less flexible than the HTB ISA and has higher penalties should you withdraw the funds.

If you do not already have a HTB ISA open, then definitely open a LISA. If you already have a HTB ISA open but are unsure about your purchasing options, it may well be worth opening a LISA too until your decision is made.

If you are very confident that you are going to be a first-time buyer, you are aged 18-39 and do not need the money for at least a year after your first payment, the LISA will be a winner for you, and it allows a bigger bonus.

Either way, which ever ISA option you chose, you will be making a great start by getting a foot on the property ladder and your dream home could be closer than you think.