Confused by all the different ISAs out there?
I can help…
A few weeks ago a relative of mine posted a status on Facebook asking about the Help to Buy and Lifetime ISAs. Having started saving to buy my first house just over a year ago myself, I shared with her what I have learnt. That in turn led me to write this as it brought back all those worries and questions I’ve had during that time.
Saving to buy brings with it a lot of emotions – some good and some bad. I am in the midst of that emotional minefield; working out costs, keeping my eye on the housing market and trying to wrap my head around all horrible jargon: conveyancer, loan to value ratio, borrowing capacity, gazumping, agreement in principle, vendor! It’s a nightmare…
So I’m going to try to break it down for you and give some helpful snippets of information and useful links. Hopefully, I’ll ease some of the pain from this exciting yet confusing experience. Be warned though, this is a bit of a long and boring read but it’s information you NEED TO KNOW!
Help to Buy ISA or Lifetime ISA?
- Both accounts give a 25% government bonus on your savings, just in slightly different ways. The Help to Buy ISA bonus is claimed by your solicitor or conveyancer after you close your ISA. This will cost a maximum of £60 for your solicitor to claim the bonus on your behalf. The 25% bonus is added to the closing amount in your ISA including any interest earned.
- The Lifetime ISA bonus is added at the end of the first tax year then monthly after that and you earn interest on the 25% bonus contributions. This money is transferred from your ISA straight to your solicitor; the money never passes through your hands.
- With both ISA’s, the money goes straight from the bank to your solicitor – so no rolling round in a huge pile of cash I’m afraid!
- The 25% bonus can be used alongside other first time buyer schemes such as the Help to Buy equity loan (eligible on a lot of new build properties).
- The Help to Buy ISA allows you to put in an initial deposit of £1000 and a maximum of £200 each month. In your first year you can save up to £3400, after that it is £2400 a year maximum (based in twelve months at £200 a month).
- The Lifetime ISA allows you to save £4000 a year and you can put in any amount of money as and when you like. This offers the better deal due to the increased amount of savings that would be eligible for the 25% bonus and the flexibility of how and when you put in money.
- The money you save in either of these accounts is only to be used for your deposit. The money (along with the 25% bonus) cannot be used to cover your solicitors fees, surveys, or anything else you might have to pay.
- Ideally you could do with a separate savings account for this money or you can withdraw it from the ISA before the money transferred to your solicitor. Remember: you forfeit the 25% bonus on any cash you withdraw.
- If you’re planning on buying before April 2018 you will need a Help to Buy ISA (must have a minimum of £1600 in the account to claim the bonus). Buying after April 2018, go for the Lifetime ISA (it has to be open for at least one year before you can buy).
- There are lots of providers that offer Help to Buy ISA’s but only a few Lifetime ISA’s. The current Lifetime ISA’s available are stocks and shares ISA’s; these sounded quite scary to me as your money is at risk and there are fees. It seems these accounts are great if you are saving for retirement but perhaps not so good if your saving for a year or two then buying.
- Luckily, in June this year Skipton Building Society are launching a cash Lifetime ISA where your money is not at risk and there are no fees. Again, this means you won’t be able to buy until June 2018. If you have a Help to Buy ISA you can transfer it into a Lifetime ISA so I can make the most of these extra savings.
Other things to consider!
I am still a year off starting the whole process of viewings and offers but I am getting prepared and so should you!
It’s so important to know what your financial situation is and that of anyone you might be buying with. That’s things like income, outgoings, debts and livings costs. You also need to look into the average costs of life insurance, buildings and contents insurance, mortgage types, properties in your area and budget… The list goes on!
The pain-free way to work all of this out is to seek free financial advice. My partner and I met with a financial advisor for a couple of hours and she cleared up every single confusing question I had and more. You can work everything out for yourself but if you can get this advice for free, do it! It’s a lot less hassle and you’ll know what you can afford down to the penny!
I’m sure there is a lot more I could tell you – and at some point I probably will – but I’ve rambled on long enough now. I hope this post has shed some light on what you need to do to start saving to buy your first property. To help you further, I have compiled a list of helpful links below. You can also ask me any questions in the comments box and I’ll do my best to help.
Thrifty Clair x
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