Roqqett Blog

Thinking about buying a house with your Lifetime ISA (Individual Savings Account)? Not sure where to begin with your Lifetime ISA? 

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It's important to know how exactly a Lifetime ISA works and how you can benefit from it which might be especially relevant for first-time buyers! Savings can be tricky and so you should know the basics in order to manage your finances well for your future.

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In this blog post, we'll define what a Lifetime ISA is, how it can benefit you, how you can open one and what house you can buy with a Lifetime ISA.

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What is a Lifetime ISA?

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A Lifetime ISA is a savings account where you can save up to £4000 a year in it and the government will add a bonus 25% on top - up to £1000. Your Lifetime ISA savings will count towards your annual ISA limit, which you can learn more about here.

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You must be a UK resident over 18 and under 40 in order to open an account. You can use the Lifetime ISA to save for your first home or for your retirement.

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It's important to note that you need to have had a Lifetime ISA account open for at least a year to get the first-time buyer bonus. So, even if you're not going to use it straight away, it's worth opening an account just to start saving a little.

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You can have cash or stocks and shares in your Lifetime ISA.

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Why is a Lifetime ISA important?

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Depending on your goals for savings and your life, a Lifetime ISA could provide you with extra cash, so let's see how having a Lifetime ISA can benefit you.

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Whatever savings you put into your Lifetime ISA - whether cash or stocks and shares - is tax-free. This means that you can contribute without worrying about losing any of it in taxes.

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As well as that, because the 25% bonus is paid monthly, you can benefit from compound interest and earn on previous savings already in the account. You may want to move money from other savings accounts to benefit from the bonus for this reason.

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You can also contribute to your Lifetime ISA and other ISAs in the same tax year to maximise your savings. You're not locked into the initial provider which means you can move to another one if the interest rates change.

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You can withdraw money from the Lifetime ISA to buy your first home, if you're 60 or over or terminally ill with less than 12 months to live.

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Remember: if you withdraw from your Lifetime ISA for any other reasons, you'll be charged a 25% fee.

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How can you open a Lifetime ISA?

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You'll want to do research into different Lifetime ISA providers and see which give you the best benefits for your goals. This will also depend on how much risk you're willing to take with your savings - i.e. having stocks and shares versus just cash as part of your Lifetime ISA.

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Click here for more information on comparing different providers.

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Be aware that interest rates may change, so keep an eye out for better deals that may come along.

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What house can you buy with Lifetime ISA?

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Before deciding on your dream home, here are the important factors you'll need to consider when withdrawing from your Lifetime ISA.

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• You must be a first time buyer which means that you can't have owned a property either in the UK or abroad or by inheriting a property.
• The property you're buying must cost £450,000 or less.
• You must have made your first payment into the Lifetime ISA at least 12 months before buying the property.
• You need to use a conveyancer or solicitor to act for you in the purchase - the provider will pay the funds directly to them.
• You’re buying with a mortgage and you need to complete the purchase within 90 days of withdrawal.

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If the property is over £450,000 you'll pay the 25% withdrawal fee or you could wait until you're 60 to withdraw.

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Another thing that's great about a Lifetime ISA is that each person can have their own Lifetime ISA, which means that you can essentially double your savings if you’re buying a property with a partner!

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How to save money for your Lifetime ISA

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Saving can be a daunting task, but if you have the right management tools, it’ll be as simple as 1-2-3. We won’t go into the ins and outs of savings strategies in this post, but our top tip is to review your income and spending monthly so you can decide how much you want to save.

You can use the Roqqett app to do this easily. See all your accounts in one place and transfer between them instantly. Now you won’t have to worry about not knowing how much money you have ever again!

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Key takeaways

1. A Lifetime ISA helps you save money for your first property and retirement.
2. Your account must be open for at least 12 months before buying the property.
3. The property you're buying must be £450,000 or less.

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Sources

Lifetime ISA .Gov.uk

ISA information .Gov.uk

Lifetime ISA: How they work, who they're for & all the best buys

How to use your Lifetime ISA to buy a home

How to buy a house using a Lifetime Isa

Using a Lifetime ISA for your first home

Can I use the Lifetime ISA to buy a home with someone else?

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This article doesn't constitute financial advice and individual circumstances should be taken into consideration. Always consult an independent financial advisor on big life decisions

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