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Lifetime ISA – what do you need to know? Terms and limits for 2023

mortgage broker pomaga w zakupie domu z lifetime isa

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In today’s article we will review the Lifetime ISA scheme. This solution pays off especially for those who can exercise patience. We sincirely invite you to read this guide 🙂

mortgage broker helps you buy a home with lifetime isa
The Lifetime ISA scheme can help you build up a deposit faster to buy a home in the UK

If you read our blog regularly, Lifetime ISA may seem familiar to you. We mentioned it in December when we compared the current assistance schemes. If you’re looking for ways to save money when buying a home, it’s definitely worth reading our article entitled “End of the Help to Buy scheme- 3 alternatives you need to know“. The Lifetime ISA is one of the ways mentioned there.

What is a Lifetime ISA?

A Lifetime ISA (Individual Savings Account; LISA) is a particular form of savings account. It is also a scheme to help young UK residents. An ISA account can be opened by people aged between 18 and 39 who are planning to save cash for the long term – for retirement or to buy a property. What is particularly attractive about the Lifetime ISA scheme is the 25% cash bonus offered by the UK government.

Unfortunately, the bonus amount is limited. As of today, you can transfer up to £4,000 in a year and therefore receive another £1,000. There’s also another restriction – you can only deposit until the age of 50. After this time, the account will still remain open and you will still be able to earn cash or purchased company shares. If you are saving cash, your money will earn interest, just like on a typical deposit.

You must be a UK resident to open a Lifetime ISA.

Source: GOV.UK

Why should you consider a LISA?

The situation in the housing market is difficult. High property prices, decreasing mortgage availability and inflation make buying a first home a real challenge. House and flat prices in the UK are rising much faster than wages. As reported by the Guardian, in more than 90 per cent of the England and Wales area, property prices have risen faster than salaries.

According to the report Housing affordability in England and Wales: 2021, the average home across England costs 9.1 times the annual salary. As recently as 2020, this ratio was 7.9:1 and in 1997, it was only 3.5. It is not hard to deduce that UK property is getting more expensive at a frightening rate and is becoming harder and harder to buy, especially with cash.

It is difficult, moreover, to pinpoint the reasons for this. Some point out that the number of new homes being built with such population growth is too low, others blame the purchase of flats and houses for rent. And let’s not forget the range of assistance programmes and high inflation.

The British government is well aware of buyers’ problems and is responding with assistance programmes. Neither an ISA account nor reduced rates of stamp duty land tax will make buying a property stop being a huge expense, but they can make the whole thing easier and help at least a little.

Lifetime ISA withdrawals

The Lifetime ISA scheme can be very beneficial to you, but only if you make withdrawals in the right way. To avoid charges, you can withdraw money when:

  • You are aged 60 or over
  • You are terminally ill and have less than 12 months left to live
  • You are buying a property for the first time (i.e. you have First Time Buyer status)

If you withdraw cash or assets for any other reason (known as an unauthorised withdrawal), a fee of 25% of the amount taken will be charged. This charge allows you to reclaim the government bonus you received for your original savings and at the same time discourages you from taking funds out quickly.

Lifetime ISA terms and conditions when buying a property

Since at Extend Finance we cover mortgages and insurance, let’s focus more on using the Lifetime ISA to buy property in the UK. As we have already mentioned, you can use the funds accumulated in your LISA, but you must meet all of the following conditions when doing so:

  • This is your first property you are buying, including those outside the UK
  • The property costs £450,000 or less
  • You are buying a property at least 12 months after making your first payment into your Lifetime ISA account
  • You use a solicitor for the purchase. The LISA provider will transfer the funds just to the solicitor’s account.
  • You finance the purchase of the property with a mortgage

The Lifetime ISA brings one obvious benefit: a 25% bonus from the government. Although the amount collected after a year or two will not be impressive, it is definitely better to have £300, £1,000 or £2,500 towards your purchase. These funds will be particularly helpful for those who want to buy a home in the UK without a deposit, or rather with as little as possible.

Lifetime ISAs will particularly appeal to teenagers and young adults. Over a few years, they will be able to build up enough money to cover the mortgage deposit on an average UK home. Well, do you know what current UK property prices are? If you’re 18, 20 or 25 now and want to move out, it’s worth thinking about, being able to raise enough money for a LISA for a few years and then buying your home.

It will be even more beneficial if you decide to buy a property jointly with another person – LISA bonuses can be combined, so if you both have first time buyer status, you could receive up to £2,000 in a year, which is quite a lot.

Are you planning to buy a property in the UK or wondering if this is possible for you? We warmly encourage you to sign up for an initial consultation. Many of our clients didn’t think they were able to buy a home on their own at all, and even now, when lending rates are high, it’s worth considering investing in a private property.

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Think carefully about securing other debts against your home. Your home or property may be repossessed if you do not keep up repayments on your mortgage or any other debts secured on it.

Your Home (or property) may be repossessed if you do not keep up repayments on your mortgage or any other debts secured on it. Conveyancing services and some forms of Buy to Let mortgages are not regulated by the Financial Conduct Authority.

Your Home (or property) may be repossessed if you do not keep up repayments on your mortgage or any other debts
secured on it.

Your Home (or property) may be repossessed if you do not keep up repayments on your mortgage or any other debts secured on it. Conveyancing services are not regulated by the Financial Conduct Authority.

Extend Finance nor The Right Mortgage Limited can’t provide advice regarding Personal Pensions, Pension planning or investment planning advice. You must seek independent financial advice from a suitably qualified professional financial adviser who may charge you for advice.

Wills, Will writing, Trusts and Trust planning are not regulated by the Financial Conduct Authority.

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