Many of you, including myself, are aware of how difficult it is for first time buyers to get on the property ladder. If you are fortunate enough to have won the lottery, then your worries are over. However, the vast majority of us will have to do it in the normal way- by squirrelling away every penny until one day you are presented with a set of keys to your first home. I am assured the hard work squirreling away is worth it.

Fear not, there is help out there to aid us on the journey to purchasing our first homes. There are two accounts which provide government incentives to help you save towards your house deposits: the Help to Buy ISA and the Lifetime ISA or LISA. Both are similar products but have their own niches. 

Firstly, if you want to open a Help to Buy ISA or use a LISA to purchase a home, you must be a first time buyer. the definition of which is very strict. It is defined as someone who doesn’t own and has NEVER owned an interest in a residential property, inside or outside the UK, whether bought or inherited.

Below is a table which outlines the key differences between the Help to Buy ISA and LISA.

  Help to Buy ISA LISA
Who can open it? Any first time buyer aged 16+ Anyone aged 18 to 39
What can it be used for? Mortgage deposit Home deposit and mortgage deposit or Retirement (from age 60)
Maximum Contributions £2,400 per annum (£3,400 in your first year) £4,000 per annum
How quickly can you use it? Minimum amount is £1,600. In theory 3 months if contributions are maximised. 1 year
Lump Sums? No, you will need to save monthly. £1,200 can be saved in your first month and £200 per month after this Yes
Investment Option? No, cash savings only. Yes, via a stocks and shares LISA
Government Bonus 25% 25%
Maximum Bonus £3,000 £33,000 (this assumed maximum contributions are made every year from 18-49)
When is the Government Bonus paid? On completion why you buy a home. Your solicitor will need to apply for this bonus. Monthly
Maximum Property Value £250,000 outside of London and £450,000 in London (this is defined as inner and outer London boroughs) £450,000
Can I withdraw money if not buying a home? Yes, at any time, you just do not get the bonus Yes, at age 60, if earlier you do not get the bonus and will pay a 25% penalty
Contributing into another ISA Only certain ISA providers will allow this. You will need to check with the Help to Buy ISA provider. Allowed as long as your total ISA and LISA contributions do not exceed £20,000.

This table is meant as a guide only and if you would like some advice on which is most suitable for you, please get in touch and we will be pleased to assist.

If you are considering starting a Help to Buy ISA, the deadline to open this account is the 30th November 2019. Once opened you will be able to save into this account until 30th November 2029 and the bonus will be added as long as you use it for a deposit by 1st December 2030.

As a result of policies brought in by Margaret Thatcher, we have become a society obsessed with property ownership, which makes us different from our European neighbours who tend to have a more established renting culture. If you want to buy a property, go for it, but do not feel pressured into it as buying a property with such high prices doesn’t have to be for everyone. It is likely to be one of the biggest financial decisions you will ever make, so it is important to ensure you do it right and that it works for you. Saving takes time, remember to get the balance right. Being a first time buyer does have some positives with the availability of the Help to Buy ISA and LISA as well as a lovely gift from the Chancellor in his October 2017 budget, ruling first time buyers will not pay Stamp Duty on properties worth up to £300,000. If the first time buyer purchases a house above £300,000, stamp duty will be liable on the excess.

Important Information: The views and opinions contained herein are those of the author(s) on this page and may not necessarily represent views expressed or reflected in other FPWM communications or strategies. This material is intended to be for information purposes only and is not intended as an offer or solicitation for the purchase or sale of any financial instrument. It is not intended to provide and should not be relied on for accounting, legal or tax advice, nor can anything stated be considered a personal recommendation. Reliance should not be placed on the views and information in this document when taking, or refraining from taking, individual investment and/or strategic decisions. Past performance is not a reliable indicator of future results. The value of an investment can go down as well as up and is not guaranteed. All investments involve risks including the risk of possible loss of principal. Information herein is believed to be reliable but FPWM does not warrant its completeness or accuracy. Some information quoted may be obtained from external sources we consider to be reliable. No responsibility can be accepted for errors of fact obtained from third parties, and this data may change with market conditions. These views and opinions may change.

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