🔔 Life after the Help to Buy ISA

If you’re a first-time buyer, you may be worried that you have missed the boat if you didn’t have a chance to open a Help to Buy (H2B) ISA before they were withdrawn from sale on 30th November this year.

The Government launched the Help to Buy ISA on 1st December 2015, designed to help “generation rent” onto the property ladder. The latest treasury data shows that since the ISA’s launch 340,000 accounts have been used so far, to help people purchase their first home.

The ISA works by offering a generous bonus to incentivise savers, aged 16 or over, to contribute towards the purchase of their first home. The Government adds a 25% tax-free bonus to your savings, paid on the completion of the purchase of your first home, up to a £3,000 maximum bonus. In order to earn the maximum bonus, you would need to save at least £12,000 in the ISA. And couples, where both are first time buyers, buying a home together can each use their H2B ISAs, so could receive a £6,000 bonus in total - £3,000 on each account.

The ISA encourages regular savings by allowing savers to contribute up to £1,200 in the first month, and £200 per month thereafter. But it’s worth noting that a new saver need only contribute £1 to open an account, therefore leaving the option open to increase contributions to the maximum of £200 per month, at a later date.

Anyone who had already opened a H2B ISA by the deadline can continue to contribute until 30th November 2029 but must claim the bonus by 1st December 2030 - or will lose it.

What can you do if you missed the deadline?

The good news is that all is not lost if you missed the Help to Buy ISA deadline. The Government also launched the Lifetime ISA (LISA) in April 2017, designed for either saving towards your first home or for retirement. And in many ways, depending on your individual circumstances, the LISA trumps the Help to Buy ISA.

You must be aged between 18 and 39 to open a LISA. However, the main difference between the Help to Buy ISA and the LISA is the potential size and longevity of the Government bonus. If you open a LISA, you can contribute up to £4,000 each year, until the age of 49. The Government will add a bonus of 25% to your savings, up to a maximum of £1,000 per year. Therefore, if you maximised your contributions to a Lifetime ISA from age 18 to 49, you’d have accrued a total bonus of as much as £33,000.

The Lifetime ISA trumps the Help to Buy ISA in other areas too. The bonus from a LISA can be used towards buying a property in the UK that costs up to £450,000. In contrast, the bonus for a Help to Buy ISA can be used towards a property in the inner and outer London boroughs of up to £450,000, but outside the London boroughs, the purchase price is restricted to £250,000.

However, you do have to hold the Lifetime ISA for a minimum of 12 months before you can use the bonus, so it would not be appropriate for those looking to buy their first home sooner than this.

The main area where the Help to Buy ISA is beneficial, is the flexibility that it offers. If you choose to make withdrawals, you will not be penalised and will accrue competitive rates of interest on the savings in the meantime.

However, doing this would reduce or even forfeit the bonus you can earn, as this is applied to the balance of the H2B ISA when you buy your home.

If you choose to withdraw money from a Lifetime ISA, however, you will face a significant penalty. That said, if you don’t use your Lifetime ISA for your first home, you can avoid the penalty by waiting until you are 60 before you access the money.

So, if the LISA sounds like it would be a good account to hold, you need to find the best one to suit your circumstances. As this could potentially be a longer term account, as it could be used to boost your retirement income, LISAs come in two different forms, cash and stocks & shares. At the moment there are only four cash Lifetime ISAs to choose from, the highest rate being offered via financial app Moneybox, paying 1.40% tax free/AER.

There are more investment LISAs available but if you are wondering which is best for you, you may need financial advice. Call our team on 0333 323 9065 and they will find someone who can help.