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Help to Buy ISA vs Lifetime ISA

Owain Banfield
Written by Owain Banfield
18th January 2017 (Last updated on Tuesday 20th November 2018)

Both the Help to Buy ISA and Lifetime ISA offer first time buyers a chance to boost their savings by 25%. But how do these schemes differ, and which is right for you? Here at Compare My Move, we're interested in saving you money during your house move, so we’ve put together this guide to help you get the most out of your savings.

Things can be daunting for first time buyers. The costs of deposits and mortgages mean many feel they will be renting forever. But long before researching properties and comparing removal companies comes the decision to start saving up your hard-earned money for that dream house.  

We all know how difficult saving money can be, let alone towards a house. So with both the Help to Buy ISA and Lifetime ISA schemes providing savers with a 25% government funded bonus, it’s important to understand your options to get the most out of your savings.

So, let’s have a look at the basics of both the Help to Buy ISA and Lifetime ISA, how they both work, and which might be best for you.

This article will cover the following points

Help to Buy ISA explained Lifetime ISA explained Lifetime ISA vs Help to Buy ISA Which is best for you?

Help to Buy ISA

What is the Help to Buy ISA?

The Help to Buy ISA is a government scheme to boost the savings of first time house buyers with a 25% bonus. Much like a regular ISA, the Help to Buy ISA provides you with tax-free interest on your money. However, under the scheme the government will add a 25% bonus to the savings when put towards a first house.

This bonus can be up to £3,000, meaning you will receive the 25% bonus on savings up to £12,000. The minimum bonus is £400, so you will need to save at least £1,600 before a bonus comes into play. You can open the account with anything from £1 to £1,000, and each calendar month can deposit up to £200.

The bonus will never actually go into your account. Instead, it is added to the money you put towards a house through your solicitor or conveyancer. The bonus will only be paid as part of the money going towards your mortgage deposit, or the amount you pay upfront towards your first house. The Help to Buy ISA started in 2015, and will be open to new accounts until 30th November 2019.

You can withdraw money at any time from your Help to Buy ISA, but any money withdrawn in this way will not receive the government bonus. Even if you withdraw money from the ISA, you’re still limited to a total of £200 deposit each calendar month. This established scheme is available at a large range of banks, credit unions and building societies.

You won’t receive the bonus on property worth more than £250,000 throughout the UK and £450,000 in London. Although you must 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. 

Help to Buy ISA: The Rules

  • Property Price Caps You will lose the bonus if the overall cost of the property is more than £250,000 throughout the UK and £450,000 in London
  • Minimum Deposit To open the account you must deposit between £1 and £1,000.
  • Maximum Monthly Payments Once set up 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).
  • 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.
  • No Buy-to-Lets This help to buy government scheme is only for first time buyers who need somewhere to live. This is not a property investment portfolio system.
  • Minimum Age for Applicants In order to be eligible for the scheme you must be aged 16 or over.
  • Time Limit The ability to join the scheme ends on 30th November 2019, after which new accounts will not be able to be opened. 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 will the Help to Buy ISA take to fill?

This is the key question on many people’s minds, how long will it take to reach the maximum £3,000 bonus available? We’ve gone ahead and done the calculations for you, but keep in mind this does not include the interest gained by your savings. 

By our calculations, 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. 

Is the Help To Buy ISA worth it?

Simply put, as a means of saving money towards a house, it is worth it for the potential extra £3,000 bonus. At a time when many young prospective first time buyers are struggling to get on the property ladder, an offer to boost savings by 25% can only be a good thing. It’s flexible enough with the ability to put anything up to £200 a month in, and to make withdrawals at any time. Added to this the fact that you and a partner can both claim the bonuses if you’re first time buyers increases the bonus to a potential £6,000.

There are a few drawbacks however, as the overall limit of £250,000 for UK properties and £450,000 for London properties may be a limiting factor. Keep in mind the scheme takes into account the overall property cost, even if you are putting money towards a proportion of the property. 

Alongside this, interest rates are generally low, so the ISA will not be generating as much interest as it once would have. As the bonus and savings will go towards the mortgage deposit, many first time buyers still feel swamped by the other costs including estate agent and solicitor fees, and the deposit at exchange of contracts.

Many of these drawbacks have been addressed by the new and separate Lifetime ISA, which will be explored in the next section. However, if you are looking to buy a house, or plan to at some point in the future, the Help to Buy ISA is still one of the best ways to start saving towards making the dream a reality. 

Lifetime ISA

What is the Lifetime ISA?

The Lifetime ISA is a new government scheme to boost the savings of first time house buyers and saving for retirement by 25%.

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. Put simply, for every £4 you put into the Lifetime ISA, the government will put in £1.

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 up until their 50th birthday.

Once paid in, the bonus will accrue interest as part of your savings. The savings, bonus and all, can be withdrawn by first time buyers to put towards the cost of their first house, or can be withdrawn by account owners after their 60th birthday. You will be charged 25% on any withdrawals that don’t hit this criteria.

This ISA is meant for long-term saving for your first house or your retirement, and won’t be for dipping in and out of! The Lifetime ISA can be used towards the exchange deposit and the mortgage deposit of houses priced up to £450,000. Your Lifetime ISA must be open at least 12 months before the savings can be used towards your first house.

The scheme was started in April 2017, and the 25% bonus for the first tax year will be paid into the account in April 2018. Following this, the bonus will be calculated and paid in month to month. The scheme has no minimum monthly saving amount. The bonus will be paid in by your Lifetime ISA manager, which will usually be the bank or building society. As an early scheme, there are not a large range amount of providers offering it so far, but your standard building societies, banks and credit unions should offer it.

Remember, you can transfer existing Help to Buy ISA savings into a Lifetime ISA during the 2017 to 2018 tax year and it won’t affect your £4,000 Lifetime ISA deposit limit.

Lifetime ISA: The Rules

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 exchange deposit and the mortgage deposit, lovely! Just talk to your conveyancer or solicitor 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 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 in to the ISA on your 50th birthday, but the savings will still be gathering interest, ready for your 60th birthday!
  • When will bonuses be paid The scheme began in April 2017, The first bonus will be paid for the year on April 2018. From this point, the 25% bonus will be added monthly.
  • 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

So, we’ve covered the basics of both the Lifetime ISA and Help to Buy ISA, and we hope you feel a little more informed 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! But let’s go through some of the similarities and differences between the schemes. 

FAQ
Help to Buy ISALifetime ISA

Who’s it for?

First time buyers

First time buyers and those saving for retirement

Deposit limit

Up to £1,000 when opening the account, and a maximum of £200 each calendar month

Capped at up to £4,000 per tax year

Minimum monthly deposit?

No

No

Property price cap

Up to £250,000 across UK, up to £450,000 in London (total cost of house)

Up to £450,000 across whole of UK (total cost of house)

Bonus limit

Bonus limited to £3,000 overall (25% of £12,000)

No overall cap, 25% of total deposit (max £1,000 a year)

Where does the bonus go?

Bonus is added after purchase is complete by your conveyancer or solicitor

Bonus is paid directly into account in April 2018 for first year, then monthly after this

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 if withdrawing before your 60th birthday or if funds not used towards your first house

Age of applicants

16+, no age limit if first time buyers

Open an account between 18 and 39. Pay into account up to your 50th birthday. Access savings after 60th birthday (or earlier if using funds for your first house)

Can be used for exchange deposit?

No

Yes

Can be used for mortgage deposit?

Yes

Yes

Which is best for you?

All in all, the Lifetime ISA looks like the more attractive offer for long term savers looking to buy their first house. It can net you a bigger bonus long-term at up to £1,000 per tax year, 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. Currently the interest rates offered are better with the Help to Buy ISA, and more providers are offering it. Plus, 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% injection into your savings can only be a good thing. So shop around, save, and start your journey to your dream house.