The journey of buying a home for the first time can be a daunting prospect, from knowing what to look for when viewing a property, to securing a mortgage, the challenges ahead can feel endless. However, one of the most important factors prospective buyers should consider is getting their finances together from the offset.
It was revealed in January that first-time buyers paid an average deposit of just over £57,000 in 2020, according to the Halifax bank house price index. With that in mind, and numerous first-time buyer schemes available, here at Enact conveyancing, we look at how a Lifetime ISA (LISA) could help buyers build a deposit from an early age to get onto the property ladder.
What is a Lifetime ISA?
The Lifetime ISA (LISA) is a long-term savings product intended to support younger people saving for their first home, or for later life. Applicants can save up to £4,000 each year, while the government will contribute a further 25% of each new payment. The funds can be withdrawn without charge a minimum of 12 months after opening the LISA, if used as a deposit for the account holder’s first home.
What are the eligibility criteria?
You can open a Lifetime ISA if you’re aged between 18 and 39 with a minimum payment of £1 to qualify the account as open.
You can save up to £4,000 each tax year, every year until your 50th birthday.
The government will pay an annual bonus of 25% (capped at £1,000 p.a.) on any contributions you make. Funds can be withdrawn tax-free at any time to buy a first home worth up to £450,000.
How can you withdraw funds from your Lifetime ISA?
You can withdraw money from your ISA if you’re:
- buying your first home
- aged 60 or over
- terminally ill, with less than 12 months to live
The government states: “You’ll pay a withdrawal charge of 25% if you withdraw cash or assets for any other reason (also known as making an unauthorised withdrawal). This recovers the government bonus you received on your original savings.”
Can you buy a home with someone else that has a Lifetime ISA?
Yes, if the person you’re buying with has a Lifetime ISA, they can use their savings and government bonus too.
However, because a Lifetime ISA isn’t purely used to buy a property but is a form of saving for later in life it’s worth knowing that they’ll pay a 25% withdrawal charge to use their Lifetime ISA savings if they already own or have a legal interest in property (for example they’re a beneficiary of a trust that includes property).
Other first-time buyer government schemes:
A Lifetime ISA is just one of many government-backed schemes available to first-time buyers, including:
- ‘First Homes’ scheme
- 95% Mortgage Guarantee
- Help to Buy: Equity Loan
- Shared Ownership
- Help to Build
Summary:
As you can see a lifetime ISA is a great way to start saving for your first home, or even for retirement and planning for the future; managing your finances from an early age is always encouraged. Ultimately using this scheme is just one way to get yourself started if you want to look at buying a house.
- You must be a first-time buyer aged 18-39.
- Your property value cannot exceed £450,000
- You must buy with a mortgage
- You must live in the property as your main residence
- You must buy the property at least 12 months after you open the Lifetime ISA and make your first savings
- You must use a conveyancer or solicitor to act for you in the purchase – the ISA provider will pay the funds directly to them
Funds can be withdrawn from a Lifetime ISA, without charge, to purchase a first home, or in the case of terminal illness or from the age of 60. All other withdrawals are subject to a 25% government charge.
If you’re a first-time buyer looking for a licensed conveyancer to manage your property move get a free instant conveyancing quote from Enact today.
