How making the switch from a Help to Buy ISA to a Lifetime ISA before 1st March 2018 could boost savings by £1,100.
27 and still living with my parents. Not ideal, but far from uncommon these days. I have to say, I’ve never been in a particular rush to move out - I have it pretty good at home! A fridge that’s never empty, no worries about water or electric bills and a personal mechanic/decorator (dad) all for only £200 a month - if only I could pay this for the rest of my life instead of a mortgage.
All of this aside, of course I still want my own place one day. So, when the government launched the Help to Buy ISA Scheme for first-time buyers in December 2015, I was quick to sign up! The scheme allows you to save up to £200 per month up to a maximum of £12,000. When it comes to moving out, the government will then top up your savings by 25%. Sounds pretty good doesn’t it?
As with any scheme though, there were a couple of points that didn’t particularly work in my favour.
1. The cap on saving £200 a month - opening the account at 25, it was unlikely I’d ever achieve the maximum government bonus before moving out
2. Location. With a Help to Buy ISA you can buy a property within a London borough valued up to £450,000 and outside of this up to £250,000. Well what about if like me, you live just outside a London borough? I’d struggle to find a house for under £250,000, yet if I went over this I wouldn’t benefit from the government bonus!
These two points aside, it was still worth it, even if purely for the amazing interest rate I would be receiving. So I set up the account with a lump sum of £1,200 and have been putting £200 a month into it since.
I had no intention of changing this arrangement until I heard about a Lifetime ISA. Launched in April 2017, the Lifetime ISA is similar to the Help to Buy ISA, but with some added benefits.
||Help to Buy ISA
|Maximum saving per year
You can pay in one lump sum or smaller instalments throughout the year.
|£2,400 (£3,400 in year one)
You can open the account with £1,200, after this you are capped at paying in £200 per month.
|Maximum government bonus||£33,000
|Maximum property price||£450,000
||£250,000 (£450,000 in a London borough)
|Bonus is paid||End of the first year and monthly thereafter whenever you make contributions, so no waiting around for funds to be released at completion. You have the money to put towards your home deposit.
||On completion when you buy a home meaning it can be used as the mortgage deposit.
|Funds||Cash, stocks and shares qualifying investments, or a combination of both
There are some restrictions to bear in mind:
||Help to Buy ISA
|Accessing the money for a house purchase
||12 months after the Lifetime ISA has been opened.
||As soon as you’ve saved £1,600 (possible to do in 3 months)
|Age restrictions at application||18 - 39
|Withdrawing money (not for a house purchase)||You will be charged a penalty of 25% unless you are over the age of 60.
||You can withdraw funds at any time, but you will not receive the bonus
|Interest rates||Currently around 0.75% (variable)
||Up to 3% (variable)
N.B contributions to either a Help to Buy ISA or a Lifetime ISA count towards your annual ISA limit of £20,000 in 2017/18
Visit gov.uk for full scheme details.
Interested? Why now is the time to switch.
If like me, you are looking to transfer your Help to Buy ISA balance into a Lifetime ISA it is really worth getting in before 1st March 2018.
Help to Buy savings that were accumulated before April 2017 can be transferred to a Lifetime ISA in the 2017/18 tax year, without counting towards the annual £4,000 contribution limit. This will not be an option in future years. There are very few organisations offering Lifetime ISAs at the moment and only one cash ISA with the Skipton Building Society. Skipton has given savers a deadline of March 1 to transfer their Help to Buy ISA balance into its cash Lifetime ISA.
If you paid the maximum allowed into your Help to Buy ISA since it launched, you would have accumulated £4,400 by April 2017. You can transfer this to a Lifetime ISA, without affecting the annual contribution limit. Help to Buy savings for the current year, probably amounting to about £2,000 (assuming 10 months contributions) can also be transferred but these will count towards the annual limit. If you have funds available to top this up to the full £4,000 limit, you will be eligible for a bonus of £2,100 (25% of £8,400), as opposed to only £1,000 max for someone starting a Lifetime ISA this year or a potential maximum of £1,700 if you stay in the Help to Buy ISA (25% of £6,800). You can have both accounts but you can’t receive a bonus on both.
So in summary, it looks like my parents are stuck with me for at least another 12 months, but owning my own property doesn’t seem as far away as it once did!
Thinking of making the switch? Before you decide, I would advise you to speak with a qualified financial adviser. Although this is the best option for me, it may not be the best for everyone.
If you are one of the lucky ones who has a deposit ready now. Give our residential desk a call. They will talk you through the entire process, making the whole thing seem a lot less daunting. Remember, here at Mortgages for Business we have access to rates that members of the public can’t get directly. We do not charge for initial advice, so what’s the harm in giving us a call?
0345 345 6788 – option 3