Can the Lifetime ISA Really Replace The Help to Buy ISA?

The Help to Buy ISA has been helping first-time buyers get a foot on the property ladder since 2015, but with the Government scheme soon coming to an end, we take a look at whether the Lifetime ISA (LISA) really is a suitable replacement for home buyers.

Sara Best, a Partner and Residential Property Lawyer at ET Law , believes it’s important for conveyancers to let first-time buyers know that there are other options available to them, aside from the Help to Buy ISA.

She continued:

“The Lifetime ISA offers much more flexibility in how you can save for your first home, with buyers being able to save up to £4,000 a year either in a lump sum or instalments while still receiving a 25% bonus from the Government.”

Will the penalty put first-time buyers off?

We know there are many benefits of the Lifetime ISA over help-to-buy, including monthly bonus payments as well as the buyer’s freedom to use it towards retirement, but should we be concerned about first-time buyers being put off by the penalty?

Unlike the Help to Buy ISA, the Lifetime ISA comes with a 25% penalty for early withdrawals if buyers are under the age of 60 or aren’t using it towards their first home. Despite this penalty, Sara believes buyers should not be concerned.

She explained:

“Here at ET Law, we have already started to encourage first-time buyers to make the move from the Help to Buy ISA to the Lifetime ISA scheme, in order to make the most of the increased amount of tax-free savings that can be made and the more relaxed rules which apply.”

Should we be encouraging first-time buyers to save using a LISA?

With the Help to Buy ISA coming to an end in November 2019, some first-time buyers are still deciding whether to transfer their existing savings over to a LISA. To combat any concerns, conveyancers across the country are tasked with explaining the new and welcomed benefits of the Lifetime ISA.

  • More than one LISA can be used to purchase a home, meaning couples can combine their LISAs to get a foot on the property ladder.
  • The bonus is paid monthly rather than after the mortgage is completed as per the Help to Buy ISA.
  • There are only 3 cash LISAs available, compared to 27 Help to Buy Cash ISAs. Most Lifetime ISAs are of the stocks and shares variety, meaning they offer larger potential returns than a Cash ISA but also carry greater risk.
  • Where the Help to Buy could only be used on properties up to £250k outside of London (and £450k in London) the Lifetime ISA limit is set at £450k regardless of UK location.
What could a general election mean for these schemes?

With talk of a snap general election looming, The Conservatives have hinted at possible greater incentives for first-time buyers, including an extension of the Help to Buy ISA.

Meanwhile, The Scottish National Party have said they would abolish ‘gimmicks’ like the Lifetime ISA and Labour claimed they would give private tenants the right to buy their rented properties at a discounted rate.

Should the Help to Buy ISA be extended beyond 30 November 2019?

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