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Everything You Need to Know About Lifetime ISAs

Updated: May 31, 2023

‘Content correct at time of publishing and subject to change’

If you had your heart set on a Help To Buy ISA but were unable to open one in time, then don’t worry, in this blog we’re going to discuss the next best thing, the Lifetime ISA. Whether you have heard of it or not, if you’re looking to buy a house in the not too distant future, then this is the blog for you. In this post, we will be looking at everything you need to know about Lifetime ISA’s and discuss how they differ from Help To Buy ISAs.

What is a Lifetime ISA?

According to the UK government website, a Lifetime ISA can be used to buy your first home or to save for later in life. They allow you to save up to £4,000 each year until you are 50 and the government will add a 25% bonus to your savings, up to a maximum of £1,000 per year. This means that for every £200 you save, you will receive a government bonus of £50.

It’s also worth noting that you have to be 18 to set them up, you will no longer be able to add funds to them once you have turned 50, and your first payment must be paid into your account before you are 40.

How Your Bonus is Paid

This is where the Lifetime ISA differs from the Help to Buy ISA. The bonus that came with the Help to Buy ISA needed to be claimed between exchange and completion, which meant that any bonus would contribute towards the overall mortgage or the mortgage deposit. However, a LISA bonus is paid monthly so that it can be used towards any deposit requirements.

This means that the bonus is calculated based on payments you make into your account from the sixth of the month to the fifth of the following month. It is, however, a good idea to check with your ISA provider as some will treat bonus payments differently to others.

Using your ISA to buy your first home

In order to be eligible to use your Lifetime ISA towards your first home, you must purchase a house that costs £450,000 or less under a residential mortgage. It’s also crucial that you remember that the money has to be transferred through to your solicitor, as failing to do so will leave you faced with a 25% withdrawal charge.

This is because a Lifetime ISA can only be withdrawn from for specific reasons (for example; you are buying your first home, you are aged 60 or over, or you are terminally ill, with less than 12 months to live) and if you attempt to withdraw for any other reason, you will be charged for making an unauthorised withdrawal. This will recover the government bonus you received on your original savings.

If, however, you are using your ISA to purchase a house, it will need to have been open for at least 12 months and it’s worth noting that only first-time buyers can use Lifetime ISAs to purchase a home. This means that if you already own, or have previously owned, a home then you will not be able to use this ISA for your mortgage.

Similarly, if you intend to purchase a property that will be rented out, then you will not be able to use your LISA to pay the mortgage. This is because you must be buying a home that you plan to live in and you must use a residential mortgage.

If you missed out on opening a Help To Buy ISA, then a Lifetime ISA is your next best alternative and we hope that this blog has cleared up any questions you may have had on LISAs. If you do have any other questions, please do not hesitate to contact us today.

To read more on the subject of mortgages, feel free to browse our full list of blogs today.


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