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Help to Buy ISA vs Lifetime ISA

Written by Reviewed by Emma Lunn

25th Feb 2020 (Last updated on 22nd Jun 2020) 8 minute read

If you’re looking to boost your house deposit savings, you can get help from the Government.

There are two savings products that enable you to do this:

  • Help To Buy ISA
  • Lifetime ISA

ISA stands for individual savings account. Interest earned on money saved in an ISA is paid tax-free.

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.

This article will cover the following:
  1. What is a Help to Buy ISA?
  2. How Does The Help to Buy ISA Work?
  3. How Long Before I Can Get My Bonus?
  4. Is The Help To Buy ISA Worth It?
  5. What is a Lifetime ISA?
  6. How Does a Lifetime ISA Work?
  7. Lifetime ISA vs Help to Buy ISA
  8. Which is Best For You?
  9. Can I Transfer Money In A Help To Buy ISA To A Lifetime ISA?
  10. Save When Buying a House With Compare My Move

What is a Help to Buy ISA?

The Help to Buy ISA is a type of cash ISA for first-time buyers that will boost your house deposit savings by 25%. 

The maximum bonus with a Help To Buy ISA is £3,000; you’d need £12,000 in savings to achieve this. The minimum amount you need to save to receive any bonus is £1,600 (for a £400 bonus).

It’s no longer possible to open a Help To Buy ISA as they closed to new applicants in November 2019. But if you already have a Help to Buy ISA, you can still make contributions until 30 November 2029. You must claim your bonus by 1 December 2030. 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. So if you buy a property with your partner, you could both use your Help To Buy ISAs.

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How Does The Help to Buy ISA Work?

If you already have a Help to Buy ISA, 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..
  • Property Price Caps - You can use your Help To Buy ISA to buy a property worth up to £450,000 in London or £250,000 elsewhere in the UK.
  • One ISA - You can only have one Help to Buy ISA open at a time. 
  • No Buy-to-Lets - The Help to Buy scheme is only for first-time buyers who plan to buy their first home  to live in themselves - you can't let it out.
  • Time Limit - Existing Help to Buy ISA holders will be able to continue paying into the scheme until 30th November 2029. Bonuses must be claimed by 1st December 2030.

How Long Before I Can Get My Bonus?

Help To Buy ISA holders could pay in £1,200 the first month they held the account, then a maximum of £200 per month.

The maximum amount you can save in a Help To Buy ISA is £12,000. It would take about four-and-a-half years to save this amount. If you saved £12,000 you’d get a £3,000 bonus (the maximum).

However, you can use your Help to Buy ISA at any time, assuming you’d saved at least £1,600 to get the minimum bonus of £400. 

Is The Help To Buy ISA Worth It?

Prior to the introduction of the Lifetime ISA, a Help to Buy ISA was definitely worth it if you planned to buy a property.

As the bonus and savings will go towards the mortgage deposit, it takes off some of the pressure with the other costs of buying a house such as conveyancing feessurveying costs and removal costs

But the Lifetime ISA is much more generous – as explained below. 

What is a Lifetime ISA?

You can save up to £4,000 per year in a Lifetime ISA. The Government adds a 25% bonus (so up to £1,000 a year). However, you must use the money to do one of the following:

  • Buy your first home
  • Fund your retirement after the age of 60

Any UK resident can open a Lifetime ISA if they are aged between 18 and 39. You can pay into a Lifetime ISA up until the age of 50.

If you saved the maximum of £4,000 every year from the age of 18 until 50, the Government bonus would be a total of £32,000. A Lifetime ISA can either be cash or stocks and shares.

A Cash ISA is a safer option than a Stocks and Shares ISA as there is no risk to your capital. A Stocks and Shares ISA is more risky, but there is also the potential for greater returns. You can also use your Lifetime ISA funds as a deposit for a Shared Ownership or Right to Buy property if the property’s value doesn’t exceed the limit.

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How Does a Lifetime ISA Work?

The Lifetime ISA is ideal for first-time buyers. However, people saving for retirement might be better off with a pension.

Here are the Lifetime ISA rules you need to stick to: 

  • First-Time Buyers - First-time buyers purchasing their first home can use their Lifetime ISA savings and bonus. Accounts are one per person, but if you’re buying with an eligible partner, you can both use your Lifetime ISAs.
  • Cash or Stocks and Shares – you can open either a Cash Lifetime ISA or a Stocks and Shares 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 tell you when you need to make these payments in the house buying process.
  • Property Price Caps - First-time buyers can use their Lifetime ISA savings to buy a property worth up to £450,000. If you buy a more expensive property, you’ll be charged a 25% penalty.
  • Maximum Deposits - You can deposit up to £4,000 per tax year into your Lifetime ISA.
  • One ISA - You will only be able to pay into one Lifetime ISA per tax year. However, you can transfer your Lifetime ISA to a new provider.
  • Age of Applicants - You need to be aged between 18 and 39 to open a Lifetime ISA. You can pay into a Lifetime ISA up to the age of 50.
  • 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 offer 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. 

Here is how the How to Buy ISA and Lifetime ISA compare

FAQ
Help to Buy ISALifetime ISA

Who’s it for?

First-time buyers

First-time buyers and those saving for retirement

Age of applicants

16+

18 to 39

Is there a minimum monthly deposit

No

No

What can you invest in?CashCash or stocks and shares

Deposit limit

Maximum of £200 each month

Capped at up to £4,000 per tax year

Bonus limit

£3,000 

£32,000

Property price cap

Up to £250,000 across the UK, up to £450,000 in London 

Up to £450,000 across whole of the 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

Withdrawal

Withdraw funds at any time. You will not receive the 25% bonus on funds withdrawn for anything other than your first house

25% charge of funds not used towards your first house and you're aged 60 or under

Can be used for exchange deposit?

No

Yes

Can be used for mortgage deposit?

Yes

Yes

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Which is Best For You?

The Lifetime ISA offers a much more attractive bonus – up to £32,000 in total. Because the bonus is paid into your account each month, you can earn interest on it which will further boost your savings. With a Lifetime ISA you can invest in the stock market, not just cash.

The Lifetime ISA has a more generous property cap and can be used for both the exchange deposit and the mortgage deposit. 

However, you have to wait a year before using your Lifetime ISA towards a new house – but you can cash in your Help To Buy ISA whenever you want. If you don’t already have a Help To Buy ISA, the Lifetime ISA is your only option as it’s no longer possible to open a new Help To Buy ISA.

Can I Transfer Money In A Help To Buy ISA To A Lifetime ISA?

Yes, however the funds you transfer will count towards the £4,000 annual limit for the Lifetime ISA (and therefore cannot exceed this figure).

You will not receive the Help to Buy bonus, but your transferred funds will qualify for the Lifetime ISA bonus.

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. 

Martha Lott

Written by Martha Lott

Having written for Huffington Post and Film Criticism Journal, Martha now regularly researches and writes advice articles for everything moving house related.

Emma Lunn

Reviewed by Emma Lunn

Freelance Personal Finance Journalist,

Emma Lunn is an award-winning journalist who specialises in personal finance, consumer issues and property.