Help to Buy ISA vs Lifetime ISA
Written by Martha Lott
25th Feb 2020 (Last updated on 2nd Apr 2020) 8 minute read
If you’re looking to boost your house deposit savings, taking advantage of the government’s Help to Buy ISA or Lifetime ISA is a wise option. Although the Help to Buy ISA ended in November 2019, those with ISAs open can still save into it until 2029.
Compare My Move’s experts take a look at both ISAs to help you decide which will benefit you the most when it comes to saving for a house deposit.
What is a Help to Buy ISA?
The Help to Buy ISA is a government scheme for first-time buyers that will boost your house deposit savings by 25%. Much like a regular ISA, the Help to Buy ISA provides you with tax-free interest on your savings, with the opportunity to receive a bonus of up to £3,000 to go towards your first house.
The Help to Buy ISA closed in November 2019. If you already have one open, you can still save money into your ISA by 30th November 2029 and can claim your bonus by 1st December 2030. Around 339,747 people have received a Help to Buy bonus since the scheme started in 2015, with the average bonus being £943, government data has shown.
To receive the maximum bonus of £3,000, you will need to save £12,000 into the Help to Buy ISA. The minimum bonus is £400, so you will need to save at least £1,600 before a bonus comes into play, with the monthly maximum you can pay capped at £200. Your bonus will be paid directly to your conveyancer or solicitor to help with your house purchase.
Although you can only have one Help to Buy ISA, there are no limits to the number of bonuses per household. This means if you are looking to buy a property with a partner, family member or friend, you have the potential to receive an extra £3,000 per person towards the cost of the house.
How Does The Help to Buy ISA Work?
For those who opened a Help to Buy ISA before the scheme closed in 2019, you can still save towards your first home and receive the government bonus. Listed below are the rules of the Help to Buy ISA scheme.
- Maximum Monthly Payments - If you have an ISA already open, you can pay in up to £200 per calendar month. This means in the first month you can kickstart your savings with a maximum of £1,200 (maximum deposit of £1,000 plus £200 monthly payment).
- Property Price Caps - You won’t be eligible for the government bonus if the overall cost of the property you buy is more than £250,000 throughout the UK and £450,000 in London.
- One ISA - You will only be able to have one Help to Buy ISA open at a time. However, you can transfer the ISA between any building society, bank or credit union that offers it. You can use multiple bonuses towards a house deposit, which is ideal for couples.
- No Buy-to-Lets - This Help to Buy government scheme is only for first-time buyers who plan to buy their first home for themselves. This is not a property investment portfolio system.
- Time Limit - Existing Help to Buy ISA holders will be able to continue paying into the scheme until 30th November 2029, at which point accounts will be closed to contributions. Bonuses must be claimed by 1st December 2030.
How Long Before I Can Get My Bonus?
If you deposit the full £1,200 amount at the beginning and put in the maximum of £200 a month, it would take you around 4.5 years to reach £12,000 (not including interest gained) and therefore the £3,000 bonus.
You’ll be able to use your Help to Buy ISA before this of course, just remember that the minimum bonus is £400 from £1,600 of savings. As the Help to Buy ISA closed in 2019, you have until 1st December 2030 to claim your 25% bonus.
Is The Help To Buy ISA Worth It?
If you’re a first-time buyer wanting to increase your deposit savings, a Help to Buy ISA is worth it for the maximum government bonus of £3,000. The scheme is flexible by allowing you to deposit up to £200 a month with the opportunity to withdraw cash at any time.
What is a Lifetime ISA?
The Lifetime ISA (LISA) is a government scheme that boosts your house deposit savings by 25%. The savings must be put towards your first home or to be used later on in retirement. For every £4 you put into the Lifetime ISA, the government will put in £1.
The Lifetime ISA is much like any other ISA, a tax-free place to hold and grow your savings, but with a 25% bonus paid by the government directly into your account. Deposits are capped at £4,000 per tax year, which means you can get up to £1,000 bonus each tax year.
Any UK resident can open the Lifetime ISA if they are aged between 18 and 39, and can pay into the ISA up until their 50th birthday. You can only withdraw your savings after 12 months and can be used as your deposit for a house priced up to £450,000. You can also use your LISA funds as a deposit for a Shared Ownership or Right to Buy property if the house doesn’t exceed the limit and you must be buying the house with a traditional mortgage.
How Does a Lifetime ISA Work?
The Lifetime ISA is ideal for first-time buyers or those looking to save money towards retirement. Below are the rules and regulations of The Lifetime ISA.
- First Time Buyers - First-time buyers looking at purchasing their first home can access and use their Lifetime ISA savings with no issue. Accounts are one per individual, but if you’re looking to buy with an eligible partner, you can both use your separate Lifetime ISA.
- First House Deposits - The savings can be used for both the deposit at exchange of contracts and your mortgage deposit. Your conveyancer will act on your behalf when the time comes.
- Property Price Caps - First-time buyers can only use the full savings towards a house which costs less than £450,000 in total. Anything more expensive than this will result in the 25% charge.
- Maximum Yearly Deposits - You can deposit a maximum of £4,000 per tax year into your Lifetime ISA, which will increase by 25% with the government bonus.
- One ISA - You will only be able to have one Lifetime ISA open per tax year. You can have more than one Lifetime ISA throughout your life though.
- Age of Applicants - In order to open an account you must be aged between 18 and 39. You will stop being able to pay into the ISA on your 50th birthday, but the savings will still be gathering interest, ready for your 60th birthday.
- Withdrawal - You can use your full savings (including the bonus) if you are a first-time buyer purchasing a house, if you are over 60, or if you are terminally ill. Any other withdrawals will result in a 25% charge.
Lifetime ISA vs Help to Buy ISA
Both the Lifetime ISA and Help to Buy ISA offers a 25% government bonus to help with your first house purchase. Whilst the Help to Buy ISA is more flexible with the way you save, the Lifetime ISA allows you to receive a bigger bonus.
We’ve covered the basics of both the Lifetime ISA and Help to Buy ISA to help inform you about your options as first-time buyers. But how do these options compare, and which is best? Simply put, it all depends on your situation. Let’s go through some of the similarities and differences between the schemes.
|FAQ||Help to Buy ISA||Lifetime ISA|
Who’s it for?
First-time buyers and those saving for retirement
Age of applicants
16+, no age limit for first-time buyers
18 - 39. Pay into account up to your 50th birthday. Access savings after 60th birthday (or earlier if using funds for your first house)
Is there a minimum monthly deposit
Maximum of £200 each calendar month
Capped at up to £4,000 per tax year
Bonus limited to £3,000 overall (25% of £12,000)
No overall cap, 25% of total deposit (max £1,000 a year)
Property price cap
Up to £250,000 across UK, up to £450,000 in London
Up to £450,000 across whole of UK
Where does the bonus go?
Bonus is added after purchase is complete by your conveyancer or solicitor
Bonus is paid directly into account on a month-by-month basis
Withdraw funds at any time. You will not receive the 25% bonus on funds withdrawn for anything other than your first house
25% charge if withdrawing before your 60th birthday or if funds not used towards your first house
Can be used for exchange deposit?
Can be used for mortgage deposit?
Which is Best For You?
The Lifetime ISA looks like the more attractive offer for long term savers looking to buy their first house. You can earn a bigger bonus long-term at up to £1,000 per tax year, it has a more generous property cap, can be used for both the exchange deposit and the mortgage deposit, and will sit in your account as part of your savings. Plus, because of the bonus cap of £3,000 for the Help to Buy ISA, if you think you’ll save more than £12,000 long-term, the Lifetime ISA becomes a better choice.
For some, the Help to Buy ISA might be the better option because the savings are more accessible. You can withdraw savings from the Help to Buy ISA whenever you want, but you would be charged 25% if you tried to do the same with the Lifetime ISA. You will have to wait a year before using your Lifetime ISA towards a new house. So for short term savers looking for a bonus, the Help to Buy ISA may be best.
Whichever suits you, it is clear that if you are a first-time buyer you should take full advantage of either scheme, as the potential for a 25% bonus to your savings will help speed up the process of building up a house deposit.
Save When Buying a House With Compare My Move
Whether you’re using a Lifetime ISA or a Help to Buy ISA to save for your house deposit, make sure you get connected with Compare My Move to save money when moving. We work with verified and trusted conveyancers, surveyors and removal companies to help you save up to 70% on the cost of your move.