Lifetime ISA vs Help to Buy ISA: Which is Right for Me?

Lifetime ISA vs Help to Buy ISA – what’s the difference, and which one is right for you? Both ISAs are attractive prospects for those looking to save for a house, but it’s important to know the pros and cons of each before opening an account.

Our guide explains the ins and outs of the two schemes, and what you should consider when deciding which is the best option for you.

Lifetime ISA vs Help to Buy ISA: The basics

The Help to Buy ISA was introduced in December 2015, and is designed to help first-time buyers save up for their first home.

The Lifetime ISA (or LISA) was introduced in April 2017, and is designed to help people aged between 18 and 40 save for retirement or for their first home.  

Both schemes offer a generous bonus if you fulfil all the necessary conditions, but there are some key differences between the two. The following table explains the basics at a glance:

Lifetime ISA Help to Buy ISA
Who can open one? Anyone aged 18-39 First-time buyers aged 16 and over
How much can you save? £4,000 per year £2,400 per year (but £3,400 in the first year)
What’s the maximum bonus available? £32,000 (if you pay in the maximum contribution for 32 years) £3,000
Can you save lump sums? Yes No, you have to save monthly (up to £200, but £1,200 in the first month)
When is the bonus paid? Annually When you buy a house
What’s the maximum property price? £450,000 £250,000 (or £450,000 in London)
When can you use it to buy a house? After the ISA has been open for 12 months When you’ve saved £1,600 – which can be done in three months
Can you withdraw money without buying a house? Yes, on retirement. If you withdraw earlier than this you won’t get the bonus and will pay a penalty Yes, at any time – but you won’t get the bonus

 

Lifetime ISA vs Help to Buy ISA: In more detail

What is the Lifetime ISA?

The Lifetime ISA allows you to earn a 25% bonus on your savings, as long as you put them towards your first home or a pension income in retirement.

You can use your savings to buy any home that costs £450,000 or less, as long as you buy it at least 12 months after you open your Lifetime ISA. You must also be buying with a mortgage, and use a conveyancer or solicitor to act for you in the purchase.

If you’re saving for later life, you can withdraw your savings after you turn 60. If you withdraw money before this you’ll pay a 25% charge (unless it’s to buy a house).

One of the biggest advantages of The Lifetime ISA over the Help to Buy ISA is that it allows you to save a lot more. You can put in up to £4,000 per year, and even though you have to be under 40 to open one, you can keep paying in until you’re 50.

The government will add a 25% bonus to your savings, up to a maximum of £1,000 per year – meaning the maximum bonus you could get, if you saved from age 18 to age 50, is £32,000.

Unlike the Help to Buy ISA the bonus is paid annually, so you’ll earn interest on the bonus as well as what you’ve saved each year. You can also pay in lump sums, which you can’t do with the Help to Buy ISA.

You can hold cash or stocks and shares in a Lifetime ISA, or a combination of both, whereas you can only deposit cash in a Help to Buy ISA.

What is the Help to Buy ISA?

With a Help to Buy ISA the government will top up your savings by 25%, up to a maximum bonus of £3,000 (for which you would have saved £12,000).

You can put in up to £200 each month, and can make a £1,000 deposit when you open the account – meaning you can put in £1,200 in your first month. To get the bonus, you need to have saved a minimum of £1,600.

You can put your savings towards a home that costs £250,000 or less, or up to £450,000 if the home is in London. It must be your first home, and you can’t use it to purchase a buy-to-let property.

You’ll earn interest on your savings, so it’s a good idea to shop around the different banks and building societies to find the account with the best interest rate. However, you won’t earn interest on the government bonu, as it will only be paid to you when you buy a home.

Lifetime ISA vs Help to Buy ISA: Which should I choose?

If you’re aged 18-39 and you want to buy a house, the Lifetime ISA is probably the best option, as it allows you to save more and earn a larger bonus. If you’re an aspiring first-time buyer aged 16-18 or over 40, the Help to Buy ISA is for you.

However, if you’re not totally sure you want to buy a house or save for retirement you may want to avoid the Lifetime ISA. If you decide to withdraw your money for any other reason, you’ll have to pay a 25% penalty on everything you’ve saved – including any interest or bonuses.

If you want to buy a property in the next year the Help to Buy ISA is a better option, as you can only use the Lifetime ISA to buy a house after 12 months. With the Help to Buy ISA you can get a bonus as soon as you’ve saved £1,600, which is possible in three months.

If you decide to open a Help to Buy ISA, don’t hang around too long – they’ll only be available to new savers until 30 November 2019. If you open a Help to Buy ISA before that date you’ll be able to keep saving until November 2029.

Lifetime ISA vs Help to Buy ISA: The decision is yours

We hope our guide has helped you decide whether a Lifetime ISA or Help to Buy ISA is right for you. Both schemes are great for first-time buyers, so opening either one is a positive step towards owning your very first home.

If you’d like more information, check out this guidance from the Money Advice Service. And in the meantime, why not browse our selection of homes for a bit of inspiration?

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