Where will you find the most gold?
For all us wannabe first time buyers the dream of owning a home can seem something of a distant prospect. For many, we find ourselves in a position where getting our chin, never mind our foot, on the first rung of the property ladder seems like a bit of a struggle!
But do not despair, because help is at hand in the form of 2 different types of Government-backed savings schemes known as the Help to Buy ISA and the Lifetime ISA (LISA). Through these two schemes whatever you save towards buying a house, Her Majesty’s Government will kindly add a whopping 25% bonus in the hope of giving you the boost needed to finally put something meaningful on your keyring!
However, the issue is that you can only use one of the two schemes when buying your first home and at midnight on the 30th November 2019 one of the schemes – The Help to Buy Programme, will be stopped for good. So there is a decision to be made as to which one is the right one for you and it is a decision that needs to be made quickly.
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As always in these instances, which scheme is right for you depends on your circumstances. So, to save you tossing a coin over which one to go for before deadline day, the kind-hearted team at trufe. thought we’d spell it out for you so that you can make an informed decision on the best option for you.
Full details of how the 2 schemes work are available via the 2 links to the associated government pages at the end of the article and it’s worth visiting these pages to understand all the intricacies and specifics within both schemes.
However, we’ve picked out the 3 key discussion points that we think will determine which scheme will be right for you (and added our 2 pence worth in the form of some words of wisdom to help you decide)….
How much do you think you’ll be able to save?
The Facts – With a Help to Buy ISA, you can deposit an initial lump sum of up to £1,200. But from then onwards you can only deposit a maximum of £200/month meaning that at the end of year one you can save up to £3400 (achieving a bonus of £850 from the Government) but in the years following that only £2400/year (which would achieve a bonus of £600).
With a Lifetime ISA, you can save up to £4000/year and have the opportunity to deposit this money into your account at any time and in whatever proportions work for you. Therefore, over the course of a LISA year, the bonus you can earn from the Government could be as much as £1000.
Help to Buy ISA’s are also capped at £12,000 of personal savings so the maximum Government bonus you can receive from this scheme is £3,000. LISA’s on the other hand, are not restricted and can be used until the age of 50. So theoretically, someone who opens an account at 18 and adds £4000/year could receive a bonus at the end of the scheme from the Government of as much as £32,000!
So, the first piece of wisdom is that if you think are looking to make the most money then the LISA is the one for you!
However, if it were all that cut and dry, we wouldn’t be writing this article so there are a couple of other things to mention…
Which schemes are you eligible for?
The Facts – To open a LISA you have to be between the ages of 18-39 whereas a Help to Buy ISA is available to anyone 16+.
You have to wait until at least a year after opening a LISA to buy a house whereas the Help to Buy bonus can be claimed with as little as £1600 in your ISA (which can be achieved in just 3 months).
Piece of Wisdom number 2 – Over the age of 40 or buying a house within the year, the best/only option for you is Help to Buy.
Are you a savings dipper?
This is a really important point to look at with both schemes set up to prevent people from using them as glorified current accounts. However, the stipulations differ quite significantly…
The Facts – With a Help to buy, you can remove funds at any point at no cost to you. However, you then can’t replace them above and beyond the £200/month limit. So if you take £1250 out of your ISA to fix the car, then it would take you more than 6 months of saving to get back to the same position in your account. This will obviously mean you’ll be slower in reaching your savings goal but in the grand scheme of things is not the end of the world.
A LISA, however, is a bit tougher. With a LISA, the Government bonus is in a ‘pay as you go’ format and so if you deposited £1000 then they would add £250 to your account. Should you then need to use that £1250, maybe to fix that unreliable car again, the Government would then take back 25% of what’s in your account. Initially, you’d think that’s fine because that is just what they paid in the first place. But actually, 25% of your new total of £1250 is £312.50 leaving you with £937.50 (£62.50 less than what you started with).
Piece of Wisdom number 3 – Neither of these are really intended as a short term savings option in to be regularly dipped in to. But, if you need some flexibility then Help to Buy is your best bet.
The last thing to say and my absolute top tip in this whole article is… REGARDLESS OF WHICH OF THESE ISA’S IS BEST FOR YOU, PLEASE MAKE SURE THAT YOU CHOOSE ONE OF THEM!
For more mortgage advice and guidance, please contact our team of mortgage experts and we can discuss your situation and how we may be able to help.