The Help to Buy ISA is ending but the Lifetime ISA is a Worthy Successor
As you may have guessed from the title, this article is for those just starting out but if you are more experienced and still reading this then the information may be useful for a friend or relative. On the 30th of November the Help to Buy ISA will no longer be available to set up, however if you set one up before this date you can continue saving until 2029. We shouldn’t worry though because the Help to Buy’s replacement, the Lifetime ISA (LISA), is arguably a more useful vehicle. We wanted to go over all options for newbies before we lost one of the choices. The features of these ISAs that are important to us come down to the amount we can deposit, the bonus, and the uses. Then we will compare the two and we will hopefully prove that there is no reason to worry that Help to Buy is ending.
With Help to Buy you can deposit up to £200 a month plus an initial deposit of £1,200. This equals £3,400 maximum deposit for the first year and £2,400 for the following years. There is also a maximum amount that can be kept in the account, this is £12,000 for Help to Buy.
With a LISA the maximum deposit is £4,000 per year which can be payed in as small or large increments as you want. There is technically no limit to how much you can hold in this type of account, but they can only be contributed into until the holder is 39 years old for a maximum of 32 years (18 to 39 years old). Therefore, the unenforced limit is £128,000.
Both of these deposits count towards the yearly £20,000 ISA allowance.
While the Help to Buy and the LISA both provide a bonus 25% it is added in different forms and at different times.
The bonus for a Help to Buy ISA comes when the money is used to buy a property. So will be 25% of the total amount you have deposited over the years. If the maximum amount, £12,000, has been contributed over the years then a solicitor can apply for the £3,000 bonus.
The government contribution is added onto the amount deposited when using a LISA, for example if you contribute the maximum £4,000 then the bonus 25% will be another £1,000 added to the account. The bonus is added annually not at every deposit. If the aforementioned unenforced maximum contribution, £128,000, is reached then the account will have amassed another £32,000.
This will be the longest section as most of the rules for these ISAs refer to how they can be used.
As the name ‘Help to Buy’ suggests this ISA can only be used to buy a first property. This rule is quite inflexible, the funds must be included in the money used for the completion of the transaction, not for the contract exchange deposit, the solicitor’s or estate agent fees, or any other costs incurred in the purchase. There is also a maximum value property that can be bought using this ISA, this is £250,000 (£450,000 in London). Amounts above £1,600 can be withdrawn with the bonus, meaning a minimum bonus of £400. However, amounts above £1,600 not for property use and smaller amounts can be withdrawn at anytime but then the bonus will not be accessible.
LISAs are much more flexible as they are not designed for property use exclusively. As mentioned before contributions can only be made between 18 and 39 years old but the money can be used for property and, if specified, stocks or just as savings. When using the account to buy your first property, its value can be up to £450,000, £200,000 more than Help to Buy. Money cannot be withdrawn apart from when buying your first property until you are aged 60 or over, without incurring a penalty. Savings cannot be taken out until it has been open for a year.
Overall the lifetime ISA is more useful as it has more useful and larger amounts can be contributed. However, there are certain instances when the Help to Buy would be more useful so we will list these as they only have a couple of weeks to take advantage. As we mentioned access to a LISA is only open after a year so if someone are looking to buy their first property within the next year then a Help to Buy would be the best option as it only takes 3 months of maximum contributions to be able to save the £1,600 to receive a bonus.
Then there are the age restrictions with a LISA, only allowing contributions between the ages of 18-39 years old. So, Help to Buy should be used for those younger than 18 or older than 39. The funds in Help to Buy can actually be put into a LISA and both can be open at the same time (the bonus can only be applied with one ISA) so there is no risk in having multiple accounts open.
The current rates for LISAs are slightly more expensive than Help to Buy but experts say this is due to the LISA being relatively new and so not having much competition. Once they become the only option and more hit the market the rates should decrease.
Hopefully this has given some concise advice as to whether you need to worry about the end of the Help to Buy scheme. As we mentioned, there isn’t any risk in setting one up, so it could be worth doing anyway. Speak to a provider for more information, we have also put some references below for more information. However, you won’t be missing out too much as the Lifetime ISA is still a great option for those still looking to buy their first property.