Lifetime ISAs guide

josephibbs93

Apologies if this has already been answered!

I am looking at buying a property for £115,000 in Scotland, after I have had my LISA for a year around about June 2018.

By then, I will have around about £11,500 saved in my LISA (approx £3,500 H2B transfer, £4,000 2017/18 contribution and £4,000 2018/19 contribution). Now, that’s £11,500 saved without the bonus, which I then expect to raise the balance to £14,375 with the bonus added in.

Do I need to use this full amount for a deposit? I plan on doing a 10% deposit, which for the property value stated above would come to £11,500. What would happen to the remaining balance of £2,875? Am I able to use this for other things, such as legal fees (LBTT isn’t applicable), or home improvements? Or would the remaining balance be treated the same as any other withdrawal if I was to remove it?

Thanks in advance!

eskbanker

josephibbs93 wrote: »

Do I need to use this full amount for a deposit? I plan on doing a 10% deposit, which for the property value stated above would come to £11,500. What would happen to the remaining balance of £2,875? Am I able to use this for other things, such as legal fees (LBTT isn’t applicable), or home improvements? Or would the remaining balance be treated the same as any other withdrawal if I was to remove it?

The only LISA withdrawals exempt from penalties (in the context of first-time property purchase) are those that go directly towards the purchase price itself, so if you wanted to spend the money on anything else then it would be treated the same as any other withdrawal and incur penalty charges of 25%.

Having said that, some conveyancers are apparently willing to overlook this formal position and accept the funds towards their overall bill, so it'll be best to discuss with whoever you engage to handle the purchase....

josephibbs93

Having said that, some conveyancers are apparently willing to overlook this formal position and accept the funds towards their overall bill, so it'll be best to discuss with whoever you engage to handle the purchase....

In this case, I wonder if it would be more beneficial to work out how much I need to have in there pre-bonus, to make it up to £11,500 once the bonus is paid?

I know this means potentially throwing away some of the bonus that you get, but it would mean that I’m not paying a penalty at least?

System

Well sure, but paying more to the value of the property (ie. MAXXING your opportunity by maximising the bonus you can receive) would just reduce the LTV, no ?

Seems crazy throwing away free bonus !!! Or is your line of thinking that the LISA funds can only be used against the 10% deposit and not against anything else (meaning at the value of the property you're looking into there would be leftovers in your particular circumstance s - which you're thinking you'd need to withdraw...??)

josephibbs93

Seems crazy throwing away free bonus !!! Or is your line of thinking that the LISA funds can only be used against the 10% deposit and not against anything else (meaning at the value of the property you're looking into there would be leftovers in your particular circumstance s - which you're thinking you'd need to withdraw...??)

Absolutely this, I don’t think I’ll have enough to reach the 15% deposit to make a difference in an interest rate on the mortgage. If it can be used to cover legal fees though, that could be useful!

pink_pirlie

You can put down a slightly larger deposit than you were intending and reduce the amount you borrow and therefore interest payments over the years. You could keep your repayment amount the same as you would have had it at 10% but slightly reducing the term to save more.

josephibbs93 wrote: »

Absolutely this, I don’t think I’ll have enough to reach the 15% deposit to make a difference in an interest rate on the mortgage. If it can be used to cover legal fees though, that could be useful!

martinspurr

The Lifetime ISA rules are different to the H2B rules - it must be used "towards a house purchase" - so effectively it will be up to your conveyancer to decide what the funds can be used towards as they are the ones signing the legal declaration.

We are in a similar position time wise. Beware of the little mentioned 30 day transfer window (T&Cs section E, page 2) between receiving withdrawal instructions from your conveyancer (which apparently can only be done at 12 months+) and the LISA paying out. This makes it effectively a 13-month wait between LISA account opening and house completion date.

josephibbs93

The Lifetime ISA rules are different to the H2B rules - it must be used "towards a house purchase" - so effectively it will be up to your conveyancer to decide what the funds can be used towards as they are the ones signing the legal declaration.

This is interesting and means that I should definitely choose wisely about which conveyancer that I use - as in some cases, the LISA May cover legal fees, in others it may not. It would obviously be best for it to as that’s less for me to pay (as it’s coming part from the bonus).

AirlieBird

josephibbs93 wrote: »

This is interesting and means that I should definitely choose wisely about which conveyancer that I use - as in some cases, the LISA May cover legal fees, in others it may not. It would obviously be best for it to as that’s less for me to pay (as it’s coming part from the bonus).

Penalty free withdrawals cannot be used to cover legal fees. They can only be used for "defraying the purchase price for the acquisition of the residential property".

DeanMB

I've initiated a transfer from my HTB ISA into my LISA and the process is underway. As I understand it this is against my 2017/18 allowances, so at this point should I be topping my LISA balance up to £4k? Then come 2018/19 I continue as normal with the new allowance?