A few home truths...
How the Lifetime Isa can help savers get on the housing ladder with a 25% boost
By Toby Walne email@example.com
dmg media (UK)
SAVING towards a first home is often an uphill battle. But building up a deposit in a Lifetime Isa can offer aspiring homeowners a welcome boost. If you are looking for a way to help a child or grandchild on to the property ladder, contributing to their Lifetime Isa could help them achieve their goal months or even years sooner. In this type of Isa, you can save up to £4,000 a year and receive a 25 per cent boost from the Government. So every £4,000 is turned into £5,000 thanks to a £1,000 uplift. The Lifetime Isa is by far one of the most generous savings vehicles out there. So it is perhaps not surprising that you have to jump through a number of hoops to be eligible. Firstly, money saved into a Lifetime Isa can only be accessed for use as a deposit towards a first home or after you reach the age of 60. Secondly, you can only open one if you are aged between 18 and 39 – although you can still contribute and receive bonuses until the age of 50. If you plan to use the money towards a deposit on your first home, the property can cost no more than £450,000. Frustratingly, this maximum has not increased since the Lifetime Isa was introassuming duced in 2017, during which time house prices have rocketed. So, if you think that by the time you plan to buy you may need to spend more than £450,000, a Lifetime Isa may not be right for you. There is no guarantee that this maximum price limit will rise in future. If you withdraw your money before the age of 60 for any reason other than buying your first home, you are hit with a penalty of 25 per cent and you lose the bonus. That means you will end up with less than you put in. The penalty applies to the amount paid in plus any Government bonus. So if you paid in £1,000 and received £250, the 25 per cent penalty would be on £1,250 – no growth. You would therefore be left with just £937.50, which is a loss of £62.50. There are both cash and investment versions of the Lifetime Isa. As a rule of thumb, the cash option may be better if you plan to withdraw your money in the next few years while the investment version is likely to grow your money more over the long term. Fiona Anderson is hoping to purchase her first home in Bristol using a stocks and shares Lifetime Isa taken out with wealth manager Hargreaves Lansdown five years ago. The 27-year-old insurance broker has so far managed to save £6,000. Fiona accepts that it may take another decade – and help from a partner – to find the £40,000 she believes may be required to get a mortgage for a £300,000 two-bedroom property. ‘It is tough getting on to the property ladder with house prices so high – so I welcome any help,’ she says. ‘The Lifetime Isa is a no-brainer.’ Contributions from parents or grandparents can make a huge difference. If someone puts £2,000 a year into a Lifetime Isa and sees five per cent investment growth, it would take them more than 11 years to build up a £40,000 deposit. But if they had £4,000 to salt away every year, it would take them just over six years, according to Hargreaves Lansdown. Cash Lifetime Isa providers include online app Moneybox, paying 3.5 per cent a year; Bath Building Society, at 3.19 per cent; Paragon Bank and Newcastle Building Society, both 2.5 per cent; and Skipton Building Society, offering 2.25 per cent interest. AJ Bell, Hargreaves Lansdown, Nutmeg and Moneybox are the key providers of stocks and shares Lifetime Isas. You can choose your own investments or pick one of their ready-made portfolios.