Martin Lewis explains the difference between Help to Buy and Lifetime ISA: Which is best?
MARTIN LEWIS, money saving expert, appeared on This Morning today to urge those saving to buy a home to hurry and take advantage of the Help to Buy ISA before it closes to new applicants in six months, as well as disussing the difference with the Lifetime ISA.
Martin Lewis, 47, spoke on This Morning about the Help to Buy ISA, which is popular with those saving for a home. The money saving expert said: “The most flexible way to get the free cash is a Help to Buy ISA, and the clock’s ticking. “There’s now less than six months left to open one, before they’re closed down to new applications on 30 November.” He then went on to explain how the ISA works and why it is worthwhile to get one – as well as making a comparison with the LISA or Lifetime ISA.
He said: “Actually two ISAs give first-time buyers free cash. The other is the Lifetime ISA (LISA), intended to be the replacement product for the H2B ISA.
“Yet you can only get the home buying bonus on one, and which wins for you is complex.
“With both, as well as interest, a 25 percent bonus is added to your savings i.e. a £250 boost per £1,000.
“A first-time buyer is someone who has never owned, or part owned anywhere worldwide. ISAs are individual products so you can qualify for one, even if you’re buying with someone who’s owned before. If you’re both first timers you can have one each.”
Explaining what people get, he continued: “There’s no one size fits all, each have strengths and weaknesses. The best thing to do is read Martin’s full Help to Buy ISA guide which takes you through it. H2B ISAs are available 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 can.
“LISAs can also be used for retirement savings (though they’re less attractive for this), but then you need wait until you’re 60 to access the money penalty-free. 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 monthly) until aged 50.
“With H2B ISAs you can save max £1,200 in the first month and up to £200/month after, getting the bonus on up to £12,000. This can make a big difference. For example open a H2B ISA today and max it out for two years and you’d have £5,800 in it, meaning a £1,450 bonus.
“With a LISA you could put £4,000 in today and £4,000 in on both 6 April 2020 and 2021 (the new tax year), that’s £12,000 saved – a bonus of £3,000.
“LISAs lets you buy a bigger property. Both can be used with any mortgage on any residential property, up to a set value. 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, 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 buyer’s as well as mortgage deposit. The LISA bonus is added each month – meaning it can be used to give the seller the 10 percent deposit most request at the point of contract exchange.”
He continued: “The H2B ISAs bonus only comes after that, when contracts complete, so it only helps as a deposit to reduce your mortgage borrowing.
“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 a 25 percent penalty to withdraw cash, unless it’s for a home, or you’re age 60+. Yet as you’ve already had the 25 percent bonus, it works out you lose 6.25 percent (£62.50 for each £1,000 saved). So only save in a LISA if you’ll definitely buy a qualifying house.
“H2B ISAs have better interest rates. The top payer is Barclays at 2.58 percent. The top LISA is Newcastle BS at 1.1 percent AER. Though if a LISA wins for you, its bigger bonus usually makes up for the lower interest.”
Martin then offered a short summary, and said: “If you’re age 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 percent sure you’ll buy at all, it’s safer to stick with a H2B ISA.
“If you’re not sure, open both, with £1. This gets a foot in the H2B ISA door before the 30 November deadline, as once open, it keeps working as normal for 10 years (though as you can put up £1,200 in the first month, if you’ll have that before November, wait until that point to open it).
“While LISAs have no end date, they do have the ‘must be open a year’ rule, so opening pone gets the clock ticking.
“I do have long term concerns about LISA viability, as they’ve not been successful.
“The Government should keep the H2B ISA going, I’m going to ask, doubt it will though.”