Should I be applying for a lifetime ISA as a first-time buyer?

First-time buyers looking to get a lifetime ISA

Saving for your first home is a challenging and often drawn-out process. Most first-time buyers take months, even years, to save up the thousands of pounds they need to secure a deposit. But did you know that with a Lifetime ISA, you could reach your saving goal quicker?

If you’re waiting to buy your first house, then a Lifetime ISA (also known as LISA) can be an appealing option when it comes to saving for your deposit. The Lifetime ISA bonus allows you to save an additional 25% each tax year, up to £1,000.

There are certain conditions that apply, which we’ll get into shortly, but on the whole, Lifetime ISAs could be the helping hand you need to achieve one of life’s biggest goals.

At Bliss Financial, we aim to make the home-buying process a stress-free and enjoyable journey while ensuring you’re in the best position before signing any documents. We give you all the information you need to make sensible mortgage decisions and keep you updated throughout the process, making getting a mortgage easy.

Today, our experts dive into the topic of saving for a house deposit – specifically, looking at a more cash-efficient way to do it. We explore what a LISA is and whether you should consider one as a first-time buyer.

Keep reading to find out how you could save an additional 25% towards your house deposit. If you’re ready to make the move and purchase your first house, then get in touch with Bliss today for personal mortgage advice.

What is a Lifetime ISA?

A Lifetime ISA (Individual Savings Account) is a new-ish savings account that uses a government-led initiative to help first-time buyers get onto the property ladder. The LISA came out in 2017 and is a great replacement for the previous Help to Buy ISA, which was closed to new users in 2019.

You can opt for a couple of different types of LISAs, including:

  • Cash Lifetime ISA: similar to a regular savings account. It gives you more stability, knowing that you’ll receive the funds you put in.
  • Investment Lifetime ISA: offers the potential to receive higher rewards by investing in stocks and shares, but you do run the risk of losing money. If you plan to use the savings soon, a stocks and shares Lifetime ISA may not be suitable.

Investment and Cash Lifetime ISAs can also be used for retirement savings, although a workplace pension may still be the preferred option due to employer contributions and tax relief. However, as we’re experts in mortgages for first-time buyers, we won’t be discussing LISAs for retirement.

Today, we’re focusing on whether you should apply for a Lifetime ISA to buy your first home.

Who can open a Lifetime ISA?

You can open a Lifetime ISA as long as you are a UK resident over 18 and under 40. It is intended solely for first-time buyers or people saving for retirement, and you can only withdraw money to purchase your first home or after you turn 60 (for retirement use).

How does a Lifetime ISA work?

Now, onto the nitty-gritty. When you deposit money into your LISA, you will receive yearly 25% bonus payments on top of any additional interest or investment gains, with the maximum bonus being £1,000 per year. You can put in a maximum of £4,000 every year until you turn 50 or until you use the funds to contribute towards your first property purchase.

If you, for example, contribute £1,000 per year to your LISA, you will receive an additional £250 bonus. As you can see, the more you can afford to save, the higher your bonus payments will be.

You can use other types of ISAs alongside the LISA. However, it is important to remember that the Lifetime ISA limit of £4,000 per year contributes towards your annual ISA allowance of £20,000 (2024/2025).

There is a high penalty of 25% for withdrawing Lifetime ISA savings early! While this may not sound too damaging since the government gives you a 25% boost, due to compound interest, you can actually end up losing money for early withdrawals. So always be cautious when considering locking away your savings, and only deposit money you don’t immediately need.

How can a Lifetime ISA be used for a house deposit?

Once you have saved up your desired amount and found your dream home, you can use the LISA savings and government bonus to contribute towards your new house deposit. With enough funds, you could potentially reduce the amount you need to borrow and get a better mortgage deal with lower interest rates.

You can use a LISA to purchase a property, as long as:

  • You’re a first-time buyer
  • The property is under £450,000
  • You purchase the property at least one year after making the first LISA payment
  • You’re using a traditional repayment mortgage
  • You will also need a solicitor who will help you access the funds from your Lifetime ISA provider

Purchasing your new home with a partner? Well, the good news is that you can both open a Lifetime ISA and benefit from double the rewards, as long as you are both first-time buyers.

When is the best time to apply for a Lifetime ISA?

While the perfect time to open your Lifetime ISA will depend on you and your current situation, the sooner you can open it, the sooner you can make the most of the financial gains.

For instance, if you max out your savings and put £4,000 per year into your LISA, you could get an additional £1,000 per year in savings. Saving this amount for five years will give you a £5,000 boost for your new house deposit – the rewards do add up!

We understand that saving the maximum amount might be tricky, especially if you rent privately and have bills to pay. However, any additional funds could be helpful, right?

Is a Lifetime ISA right for everyone?

Lifetime ISAs are aimed at two groups: those who have yet to buy their first-ever home or those who want to save for retirement. That being said, even if you fit into these two boxes, the Lifetime ISA still might not be right for you.

It all depends on your current situation and your financial goals.

However, if you’re a first-time buyer and have at least a year or so until you’re ready to buy your dream home, then a LISA can be your golden ticket to getting additional funds for your deposit. As we mentioned earlier, the sooner you open one, the more you’ll be able to earn.

Advantages of a Lifetime ISA

The main advantage of opening a LISA is the ability to boost your savings with the generous government bonus. For every £1 you put in, you’ll get an additional 25p from the government, up to a maximum of £1,000 per tax year.

  • Boost your house deposit savings by 25%
  • Tax-free interest and investment growth
  • Flexibility to use for your first home or retirement

Disadvantages of a Lifetime ISA

Is it really free money? While you do get a decent government bonus, certain terms and conditions apply to access the bonus payments. These might not be favourable for all first-time buyers.

  • 25% penalty for withdrawing the funds early
  • Property purchase is limited to £450,000 or less
  • Age restriction for opening a LISA (over 18 years and under the age of 40)

Are you a first-time buyer looking for a mortgage? Get in touch with Bliss

At Bliss Financial, we understand that while it is an exciting time, buying your very first home takes time and can come with a handful of challenges. With lots to consider, such as how much deposit you need and where to get the best mortgage deal, sometimes you just need some expert support and guidance.

If you’re looking for friendly first-time buyer mortgage advice or a quick mortgage in principle for your dream property, you’re in the right place. At Bliss, we will support you through the home-buying journey, from our initial conversation right up to completion and beyond!

Get in touch today to discuss your situation, and let us help you find the best mortgage deals available.

Want to come fully prepared? Read our helpful guide for everything you need to know as a first-time buyer.

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Amanda Marsden

Amanda is the founder and owner of Bliss Financial. She has been helping clients with their mortgage and insurance needs for over 15 years. Her passion is to fully explore the options open to them and ensures the process is easy with no stress. She also specialises in helping clients invest in buy to let property and landlords.

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I am now on my second mortgage which was arranged using Bliss. What an outstanding service. From start to finish the Bliss team were great in answering queries that I had. They even pushed to get me an extension to my offer seeing me secure a great rate before the recent rises. This certainly helped me secure my dream home. I would recommend Bliss to anyone who is after a professional and personable mortgage advisor.
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The staff are amazing and very helpful throughout the whole process, the rates are very competitive and the after sales service is second to none, I would highly recommend Bliss Financial to anyone.MarkAspire Property Rentals
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Amy has been amazing from the start of our process as first time buyers until completion. We had a few delays along the way due to waiting on a new build but Any was there to guide us through every step of the way to help us rearrange another mortgage and kept us regularly updated on the process. I have already recommended her to friends and family and wouldn’t hesitate to use her again when we remortgage.
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