Purchasing your first home is a monumental achievement and one that we love celebrating here at First Property Steps. Something that I am always asked is, what is the best way of saving up to buy a property? There is no one size fits all, but there are several government schemes out there designed specifically to support first-time buyers. We have previously reviewed the Shared Ownership and Deposit Unlock schemes. Another helpful scheme is the government-initiated Lifetime ISA (LISA). Targeted at the younger age group (18-39) the LISA is a dual-purpose ISA that encourages under 40s to purchase their first home, save for retirement or do both.
What is the Lifetime ISA (LISA)?
Introduced in April 2017, the Lifetime ISA allows younger generations to save flexibly whilst offering generous tax-free top-ups. It can be opened with as little as £1 and savers can contribute up to £4000 per year towards their first home or retirement. The government then contributes 25% on top of what you save.
How does the Lifetime ISA work?
Opening a LISA is relatively simple to do and most banks offer it. In a nutshell:
- You can save up to £4000 per year.
- The government contributes a 25% bonus on what you save; which is a maximum bonus of £1000 each year.
- For every £4 that you put into it, the government will give you £1.
- You will receive bonuses in the account until the age of 50. After that, you can still contribute but you will not receive a bonus.
- You have the option to save cash or invest in the stocks and shares market.
- ISAs run according to the tax year (6th April to 5th April)
- Money can only be withdrawn for purchasing a home or after the age of 60. If you do not use the savings on a property or draw out before the age of 60, you will be stripped of your 25% bonus and charged a penalty fee.
How can I use a LISA to buy my first property?
If you plan to use your savings to purchase your first home, you must have had the account open for at least 12 months and the property that you buy will need to be £450,000 or less. If you are buying a home with another person, you can combine your savings to purchase a home together.
Once your offer has been accepted, simply contact your LISA provider to arrange the transfer of your money to your solicitor or conveyancer. If the sale falls through, your savings will be transferred back into your LISA account. After buying your property you can continue to keep the Lifetime ISA open to save towards retirement.
Who is eligible for a Lifetime ISA?
To be eligible for the Lifetime ISA you must:
- Be a first-time buyer
- Be aged 18- 39 years
- Intend to live in the property and not buy to let
- Be buying a home for £450,000 or less
- Purchase your home with a mortgage
If you are planning to purchase a home under £450,000 in the next couple of years, a Lifetime ISA can be an achievable way of boosting your savings. By opening up your account with as little as £1 you can put a little money aside each month and start the exciting path towards owning your very first property.