The Benefits of Opening a Lifetime ISA
This week one of the few building society’s offering LIFETIME ISA’s (known as LISA’s) announced that between 01/01/2019 and 31/03/2019, 7 times more people opened a LISA compared to a Help to Buy ISA. But why? Read our blog to find out why we think this is the case and why, if you’re a First Time Buyer you should consider opening one too.
Possibly the best Lisa you’ll meet
Interest rates are still at some of the lowest levels they have ever been. This is brilliant news for people on the mortgage and property ladder, but also means those still tirelessly saving for their first home aren’t getting much return for their savings. However, there is a glimmer of hope in the darkness, and it comes in the form of LISA, the Life Time ISA.
LISA isn’t just another savings account where you put lumps of money away every month and see little reward coming back in terms of interest earnt. Oh no, she’s a bit more special than that.
Why is different?
LISA is the ‘pumped up’ version of the Help to Buy ISA that was brought in way back in 2015. The Help to Buy ISA was introduced to encourage First Time Buyers to put a monthly sum of money away into an account which would not only earn them interest, but also reward them by the government ‘topping up’ the money put away by 25%. So, for every £100 you put away, the government would, in effect, give you £25 towards the deposit for your new home. Pretty cool, aye? Well it was until the Life Time ISA came along..
You see, the Life Time ISA has the same benefits of the Help to Buy ISA in that the government still tops up your account by 25%, but the LISA is far more flexible with your saving habits.
-LISA annual deposit limit is £4,000, Help to Buy is £2,400
-LISA accepts lump sums or monthly payments at any figure, Help to Buy has a maximum monthly contribution of £200
-LISA’s maximum government bonus is £32,000, Help to Buy is £3,000 (ouch)
-LISA bonus’ are earned annually so will earn interest on the money you have saved as well as the bonus, whereas Help to Buy bonus is paid when your solicitor claims the funds when you have found and exchanged on a property, so you will only earn interest on your own savings
-LISA allows you to use the money and bonus to buy any home worth up to £450,000 anywhere in the UK, Help to Buy has a limit of £250,000 (or £450,000 If you’re in London)
What isn’t so great about it?
The only thing we wouldn’t rave about with the LISA is that you will be penalised if you want to take your savings out for any reason other than the purchase of your first home or your retirement. Another thing to bear in mind is that the LISA account must be opened for 12 months before you can use the money to buy your home, but if you are completely set that you will be purchasing a home at some point in the future, and that it will not be within the next 12 months, then opening a LISA really should be something you’re considering. Just think, for every £4,000 you put away, the government will give you £1,000 towards your purchase.
So why should I have a LISA?
To break it down, if you put away £333 a month, this would take you to £3,996 over the year. Skip a Costa coffee or two and there’s your £4,000 contribution to your LISA.
If you saved the above for two years in a LISA, you would be sitting on £10,000 at the end of 24 months (not including any interest payments made).
If you saved the same in a normal savings account, you would have to save for 30 months to reach the same level of savings.
By using the LISA, you would have reached £10,000 in 2 years instead of 2 1/2 years.
Combining the benefits of the LISA and no Stamp Duty Land Tax to pay for First Time Buyers, there really has never been a better time for First Time Buyers to start thinking about the steps they need to take in order to be able to climb onto the property ladder.
I’ve decided how to save my money, what are the next steps?
We’ve rambled on about ISAs, but what’s the point saving money each month if you don’t know how much you’ll actually need? Ah, that’s where we step in..
You may have already guessed by our name, but at Mortgages.Online, our area of expertise is, well, mortgages...
Once you’ve decided where to put your savings, the next steps would be finding out how much you could borrow, which you can get a rough idea about in under 30 seconds by using our sourcing system. https://mortgages.online/residential/purchase/
Once you’ve got a rough idea, the next steps would be to either continue online and give us a little bit more information or pick up the good old-fashioned phone up and give us a call where one of our experts would be more than happy to help.
Isn’t it a bit early to be thinking about a mortgage?
Absolutely not! Contacting a mortgage adviser shouldn’t be something you leave until you find the house you want to buy. No one wants to find their dream home only to be disappointed when they’re pipped at the post by a more organised buyer who already has their finances in place, or to be told that affordability doesn’t quite meet.
Avoid this disappointment by contacting us today on 03300 58 60 58 or email us on firstname.lastname@example.org to give you the best chance of securing a mortgage and getting your dream home in the future.