Help to Buy ISA vs Cash Lifetime ISA

Written on 29 November 2019 by Robyn Clark, Alice Colmer, Nick Morrey


Help to Buy ISA vs Cash Lifetime ISA

If you’re a first-time buyer saving for a property, then you’ve probably heard about the Help to Buy ISA deadline.

Should you join the scramble to apply before the deadline of the 30th November 2019?

The main appeal of the Help to Buy ISA is that you can receive a government contribution that goes towards the purchase of your first property. But this isn’t the only ISA that allows you to receive the government contribution.

We’ve broken down everything you need to know about the Help to Buy ISA and the alternative option of the Lifetime ISA below, so you have a better understanding of what your options are.

It’s worth noting that you can have and contribute to both Help to Buy and Lifetime ISAs but you cannot claim the house purchase bonus twice.  You can claim it via one or the other.

Help to Buy ISA

What Is It?

The Help to Buy ISA is part of the government’s Help to Buy scheme which aims to support first-time buyers looking to purchase homes.

The point of the Help to Buy ISA is to help you save a mortgage deposit for a property valued at up to £250,000 outside of London and up to £450,000 in London.

Who Are They For?

Help to Buy ISAs are specifically for first-time buyers who don’t yet own a property anywhere in the world.

To qualify, you must also:

  • Be 16 or over
  • Have a valid National Insurance Number
  • Be a UK resident
  • Not have another active cash ISA in the same tax year

How Do They Work?

You open a Help to Buy ISA savings account through a bank or building society. You can put up to £1,200 into the account when you first open it. You can then only put up to £200 into the account each month. The government will contribute 25% of your savings, e.g. you put in £200 and the government will add £50, giving you a total of £250.  The maximum you can put into the account overall is £12,000 which means the total you can receive in government contributions is £3,000. You must have at least £1,600 in your ISA to claim the minimum government contribution of £400.

Your total savings – including the government contributions – will earn tax-free interest at a rate of around 2% - 3% all the while they’re in the account.  

Where Can You Get One?

You can get a Help to Buy ISA through a bank or building society. See the Help to Buy Gov website for a list of providers.

When’s the Deadline?

30th November 2019.

Why Should You Get One?

Help to Buy ISAs have a certain level of flexibility other cash ISAs don’t, for example:

  • As the government bonus is only added when you’re actually about to buy a property, you’re able to take out some of your savings if you need them even if you’re not using them to buy your home. You’ll just have to put those savings back in bit by bit due to the monthly allowance of £200
  • You can access the government bonus as soon as you have reached the minimum amount of £1,600, so they’re suitable if you intend on buying a property soon
  • Most big banks and building societies offer Help to Buy ISAs so you’re more likely to be able to open one with your current bank. Many people see this as a positive as you won’t have to take out multiple accounts across multiple banks
  • Interest rates for Help To Buy ISAs can be higher than those for lifetime ISAs
  • There’s no upper age limit

What Are the Drawbacks?

  • The deadline is the 30th November 2019 so submitting an application may be a rush
  • You can only put in a certain amount each month
  • You can only receive a maximum of £3,000

Cash Lifetime ISA

What Is It?

The Lifetime ISA is a newer type of ISA, created to help people save for their first home or for retirement.

Who Are They For?

Lifetime ISAs are for first-time buyers and for those saving for retirement, between 18 - 39 years old.

How Do They Work?

You open a Lifetime ISA savings or investment account through a bank or building society. You can put in up to £4,000 a year and you’ll receive a 25% government bonus. Therefore, if you save the full £4,000 per annum you’ll receive a £1000 bonus, giving you a maximum of £5,000.

The total contribution you can receive from the government is £32,000, if you took out the ISA at 18 and continued to put in the maximum of £4,000 each year. 

You can put money into the account up until you’re 50 years old. After this, you can’t make any more payments and won’t receive any further contributions from the government. The money will stay in the account and continue to earn interest up until you take it out.

You can use your Lifetime ISA savings to purchase a property that’s worth up to £450,000, inside or outside of London.

Your total ISA savings, including the government bonus, will earn tax-free interest at usually between 1% and 1.5% up until you take out the money.

Where Can You Get One?

You can get a Lifetime ISA through selected banks or building societies.

When’s the Deadline?

There’s no current deadline for a Lifetime ISA. You just need to open one before you’re 40 years old.

Why Should You Get One?

  • The maximum contribution you can receive from the government is £32,000 which is much larger than the maximum contribution of £3,000 with a Help to Buy ISA
  • You can use your Lifetime ISA savings – including the government contribution – as a deposit on a first home valued at up to £450,000
  • There’s no monthly cap on how much you can put in, as long as you don’t exceed the £4,000 annual maximum
  • Lifetime ISAs are suitable for first-time buyers and people looking to save towards retirement

What Are the Drawbacks?

  • There’s a 25% withdrawal charge if you take out money from the account and you’re not buying your first home, aged 60 or over, or terminally ill with less than 12 months to live
  • You have to wait at least a year after you open your Lifetime ISA to purchase your first property

Categories: First-Time Buyers, Robyn Clark, Alice Colmer, Nick Morrey

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