In the UK, there are two government initiatives to help first-time buyers: to give you an overview, I shall be comparing Lifetime ISA vs. Help to Buy ISA. I hope this helps with your decision making and that you open what’s best for you!
The Frugal Frenchie
The following criteria are things I thought about when comparing the two, but it is also important to do your own research before opening up these accounts, especially as you can only have one. For more information, the following links will take you to the governmental pages for Lifetime ISA and Help to Buy ISA.
How much can you save?
Lifetime ISA: The maximum you can put in is £4,000 per tax year. On top of this, the government gives a 25% bonus from the up to a maximum of £1,000 a year. The bonus is paid in monthly whether you pay £4,000 all in one go or in multiple payments. Thankfully, for both accounts, both individuals (if applicable) buying the house can open an account each. It is not limited to one per household, however, both parties need to be first time buyers.
Help to Buy ISA (HTB): HTB is much stricter with how much you can save. You are limited to a maximum of £200 per month, in which you receive £50 from the government as a bonus. It is worth noting though, that the bonus is given only when you close the account, not “as you go.” The maximum the government will give in total is £3,000.
Winner: Lifetime ISA wins this category. It gives you a bigger bonus and pays based on how much you put in, rather than the HTB £50 for every £200 (the max) you put in a month. Furthermore, across the years, you can earn up to £32,000 bonus from the government. Furthermore, Lifetime ISAs also allow you to invest in stocks and shares rather than save money – something to consider if you’re interested in starting out.
Opening/closing the accounts
Lifetime ISA: These can be opened from any point between the ages of 18-39. If the money is not used towards a first home, you can save the money and access it when you’re 60 to contribute towards your retirement. Even if you do use the account to save for your first home, you can keep the account open afterwards.
HTB: Depending on where you open your account, you can end up paying different costs to open (see future categories). If you’re eager to start saving early, you can open HTB at 16 as it they are only available for non-home owners.
Winner: Lifetime ISA wins. Unlike HTB, once you use the amount towards buying a first house, you do not have to close your account but you can keep it open for retirement savings.
What access do you have to the money?
Lifetime ISA: There are only three circumstances in which it is free to withdraw money: you’re buying your first home, you’re over 60 or you are terminally ill and have less than a year to live. If these circumstances do not apply to you, you have to pay a 25% charge if you want to withdraw any money. This is to make sure that you do not withdraw the government bonus that was given to you and so you do not make a profit.
HTB: You are allowed to withdraw money from your HTB, however, if you want to put money in afterwards you would have to wait for the next month to do so. The implications of that being that you may not make the full £200 for that month but that’s ok. If you want to withdraw all the money you need to let your ISA manager as they will then close your account and give you a closing statement.
Winner: Help to Buy offers more flexibility to access the money.
Any other limitations?
Lifetime ISA: If wanting to use a Lifetime ISA towards your first house, you are limited to a property of £450,000 anywhere in the UK. Despite the disadvantage, it is higher than the limitation from a HTB.
HTB: Depending on where you open a HTB, you could pay different amounts to open the account. Personally, I hadn’t researched this when I first opened it; assuming that all governmental schemes were the same. I paid £1,200 just to open my account, whereas some places require only £1 to open.
HTB: Savers can contribute a maximum of £12,000 in a Help to Buy ISA. This would generate a government bonus of up to £3,000. However, this bonus will be paid when the house purchase is completed, meaning it cannot be used for a deposit.
HTB: If you want to use your HTB balance, you are limited to properties of £250,000 in value or less. This is important to consider as in some locations, particularly in the South, you may find it difficult to find properties for this price. They do, however, raise the restriction to properties of a value of £450,000 if in London.
HTB: This account is closing in November 2019. After this, only people who currently have an account can continue benefitting from the bonuses. If you are interested in this account, you will have to open it before this date. For updates on this, keep checking the Gov.UK website.
Most limitations: HTB wins this category due to its property limitations, inability to be used as a deposit, soon-to-be-closure and minimum opening amounts.
If you have any other information to add, or you decided to open one of these, please let me know which one and why in the comments. There will be a lot more mortgage/house related information coming on the blog soon, so please subscribe to get notified of new posts!