You can be forgiven for missing the start of the new tax-year last week.
But, if you soon hope to buy your first home, and are therefore saving for a deposit, the 6th April 2017 is an important date.
Why?
Because it marks the launch of the Lifetime ISA, or LISA for short.
The LISA will give eligible first time buyers a cash boost to their deposit savings, allowing them to get onto the housing ladder sooner than they thought possible.
So, if you’re a first-time buyer, read on for more information, it may help you get onto the housing ladder more quickly. Alternatively, if you know anyone saving for a deposit; perhaps your children, grandchildren, friends or relations, please forward this article on to them. They will thank you for it.
How does the LISA work?
The LISA is designed to help younger people save up for a house deposit and retire. Today we’ll focus on how it can help first time buyers, except to say that employees should probably use a workplace pension to save for retirement, because it will receive an employer contribution, and not a LISA.
Back to saving for a house deposit.
The LISA fundamentals are as follows:
- Anyone over the age of 18, but under the age of 40, is eligible to open a LISA
- Contributions can be made up to the age of 50
- The maximum contribution is £4,000 per year and counts towards you annual ISA allowance of £20,000
- The LISA is available in a Cash and Stocks & Shares format
- Returns are tax-free
So far, not particularly exciting, it sounds like any other ISA, right?
Yes, but here’s the kicker.
For every £1,000 you save, the government will add an extra £250. Therefore, if you save the maximum £4,000 each year, you will get a bonus of £1,000. If you and your partner are both first-time buyers you can each have a LISA, that’s an extra £2,000 in ‘free’ money each year you could qualify for.
It sounds too good to be true
No, it’s not, providing you use the money as a deposit for your first home or after the age of 60.
If you use it for anything else, assuming you are not terminally ill, you will pay a penalty of 25%. But, if you will definitely use your savings for a deposit on your first home, why wouldn’t you use a LISA? The 25% bonus makes it a no brainer.
A few other things you need to know
If you plan to put the savings towards your deposit:
- The property must be worth less than £450,000 and bought with a mortgage
- If you are both first time buyers you can each contribute to a LISA, effectively doubling the government bonus you qualify for
- You must have had your LISA for at least 12 months before you use it to buy a home
How can I take out a LISA?
It’s fair to say that banks, building societies and other financial product providers haven’t rushed to launch their LISA products on the first day of the new tax-year. In fact, there is only a handful to choose from. We do expect more products to be launched later in the tax-year, so watch this space.
Here to help first time buyers
We specialise in helping first time buyers choose the right mortgage and get on to the property ladder.
It’s no surprise then that we very much welcome the introduction of LISA, which will help first time buyers build up a large enough deposit, more quickly, to buy a home.
If you would like more information about LISA or need a mortgage to help you buy your first home, please get in touch, we are here to help.