Martin Lewis of MoneySavingExpert: An urgent warning to anyone who’s never owned a home
- Credit: Archant
This is clarion call for urgent action to anyone age 16+ who has never owned a home.
There's thousands of pounds of free cash available for first-time buyers towards a new home, yet the easiest, simplest way to get this - a Help to Buy ISA - closes to new applicants on 30 November. So put £1+ in now or risk missing free £1,000s'.
If you want a Help to Buy ISA, go quick as the final deadline's 30 November.
However provided you open it by then the facility, stays open for 10 years, so you can keep putting money in and getting the bonus (and if you don't use it in ten years you can just withdraw the cash).
Is a Help to Buy ISA better than a LISA?
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- H2B ISAs are open to more people. You just need to be aged 16+. To open a LISA you need to be age 18-39, so those 40+ should open a H2B ISA while they still can.
LISAs can also be used for retirement savings (though they're less attractive for this), as once you're 60 you can access the money and the bonus without penalty.
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- LISAs bonus can be £1,000s bigger. You can save far more in LISAs - up to £4,000 each tax year (as a lump sum or when you can) - and the bonus will be paid monthly until you're 50.
- LISAs lets you buy a bigger property. Both can be used for a mortgage on any residential property, up to a set value. However for H2B ISAs the limit's £250,000 (£450,000 in London), for LISAs it's £450,000 everywhere
- H2B ISA bonus can be triggered faster. To get the H2B ISA bonus you need £1,600+ saved, which is doable in just three months. Yet LISAs only pay the bonus if they've been opened a year or more (consider opening a LISA with a £1 now, to start the clock).
- LISAs bonuses can be used for exchange as well as mortgage deposit. The LISA bonus is added each month, and you can cash it in to give the seller the 10% deposit most request at the point of contract exchange.
The H2B ISAs bonus only comes after that, between exchange and completion, so it only helps as a deposit to reduce your mortgage borrowing, not to give to the seller.
- H2B ISAs let you withdraw penalty-free. That means even if you're not sure you'll buy a house, they're a no-brainer. Yet with LISAs you pay penalty to withdraw cash unless it's for a home or you're age 60+, which works out as a loss of 6.25%. So only save in a LISA if you'll definitely buy a qualifying house.
- H2B ISAs have better interest rates. Generally rates are better with Help to Buy ISAs, for full updated best buys for both go to www.mse.me/HelptoBuyISA and www.mse.me/LISA. Though if a LISA is right for you, its bigger bonus usually makes up for the lower interest.
It's worth noting if you've paid into a cash ISA in this tax year you can't get a help to buy ISA (you can have a LISA), though there's a work around this via the www.nationwide.co.uk, which has a system so you can get both.
So in a nutshell, if you're aged 18-39, will definitely buy a home costing under £450,000, can max out the savings and won't buy within a year, go for a LISA, as you will get a bigger bonus.
If you're older, need to buy quickly, aren't saving that much, or aren't 100% sure you'll buy at all, it's safer to stick with a H2B ISA.
If you're not sure, open both with £1+ (if you can, put more in a Help to Buy ISA as you're allowed to put £1,200 in the first month and you can withdraw it at any time).
This gets a foot in the H2B ISA door before the 30 November deadline, and gets the clock ticking on the LISA's 'one year before withdrawal' rule.