Lifetime ISAs guide

Danielle_Booth

I have been looking into opening a LISA and after reading a lot of information on numerous websites I decided to go ahead with Nutmeg as this is the only company I have heard of and trust.

When applying, it asked how much I would like to invest. I was not sure what this meant, so I spoke to a member of staff via web chat. They told me that this would be the amount I can pay into the account for the tax year..

I got quite confused by this as I thought I only had to open the account with a £100 deposit and then pay in whenever I could throughout the tax year up to the maximum of £4000. Nutmeg told me this is all that is available for now but they are currently looking into trying to make additional payments available, but they couldn't tell me when this would happen.

This really frustrates me as I thought the whole point of a savings account was to add money to build up the total amount because you do not have the money for a deposit ready yet. I also only have a small chunk of money which would be wasted if I put it into a LISA right now as I would only get £100 extra from the 25%. They told me that other people who have thought the same are now holding their money in a normal ISA with a high interest rate until they sort out the additional payment feature.

Are you able to advise the best ISA to open for my money right now? Once this feature is ready I will transfer the funds over.

eskbanker

Danielle_Booth wrote: »

They told me that other people who have thought the same are now holding their money in a normal ISA with a high interest rate until they sort out the additional payment feature.

People might put their money in such a thing if it existed!

It must be stressed that Nutmeg is a product for holding investments that can increase or decrease in value, and is therefore unlikely to be suited to short to medium term saving of less than, say, five years. However, as there aren't any cash LISAs on the market just now, it's a popular option for those who wish to save up for a first property, but only as a temporary measure - once cash LISAs are available (Skipton is the first to launch, in June), then many Nutmeg account holders plan to transfer back to cash-based products to get away from investment risk.

The benefit of doing this is to start the clock ticking as early as possible, since a LISA can't be used for at least a year from opening.

Also, since contributions to a LISA are capped at £4K per tax year, there is nothing to stop you following the herd and opening a Nutmeg account with £100 and finding a better home for the other £3900 (e.g. high-interest current or regular saver accounts) until 5 April 2018 when you can put it into the LISA and get your £1K bonus on it.

Edit: you may also wish to consider a Help To Buy ISA?

pphillips

ohwattagosiam wrote: »

Hi all,

I'm 36 and considering opening a LISA to save for my baby daughters future. I already own a property, so don't qualify on that front, and I'm a member of my employers pretty generous Defined Benefit pension scheme; so don't believe I need a LISA for additional retirement benefits.

My intention is to put £2k-£3k in per year, most likely in a Stocks and Shares LISA, and at 60 (my daughter would be 24) be in a position to withdraw the money to put a sizeable deposit on a property for her/clear her university debt/whatever other reasonable large expenditure I can't currently think of.

Is this a reasonable thing to do? Are there better alternative products I could use instead? Essentially, can anyone think of any reason/s not to use a LISA for this purpose?

Thanks in advance for your responses.

This sounds like a good idea to me and, unless you are likely to need to be assessed for local authority care or benefits in which case it might be classed as deprivation of assets, I can't think of anything else preventing you doing this. Otherwise once you hit 60 you can do as you wish with the money, although I would not advise using it to pay off a student loan as this is currently written off after 30 years.

Another way you can save for your daughters future long term is if you take out a stakeholder pension for her, you can pay in up to £2880 a year and the government will add a maximum of £720 a year, topping it up to £3600. However, she will not be able to access it until she's 55.

ohwattagosiam

pphillips wrote: »

This sounds like a good idea to me and, unless you are likely to need to be assessed for local authority care or benefits in which case it might be classed as deprivation of assets, I can't think of anything else preventing you doing this. Otherwise once you hit 60 you can do as you wish with the money, although I would not advise using it to pay off a student loan as this is currently written off after 30 years.

Another way you can save for your daughters future long term is if you take out a stakeholder pension for her, you can pay in up to £2880 a year and the government will add a maximum of £720 a year, topping it up to £3600. However, she will not be able to access it until she's 55.

I'm unlikely to be assessed for local authority care or benefits, but that's a good point about the student loan being written off.

The way I'm treating the LISA is like a regular Stocks and Shares ISA, accept with the added benefit of being topped up 25% by the government.

There are a couple of negatives like not being able to draw it until I'm 60 (without incurring a large penalty at least), and being limited to £4k a year, but hey, I'm not made of money, and second child is likely within the next couple of years which I'd intend to do the same for.

I considered opening a SIPP for her (another good idea PPhillips), but with the disposable money I've got, decided that I'd go with a product that would help her earlier in life, and would drum "You must join/open a pension scheme" into her, so that she does just that when she starts working. If I'm come into some unexpected money though, I will certainly reconsider it

prakhil13

Hello MSE team,


I have an existing mortgage since 2010 and I am a first-time buyer. Can I use the government bonus by opening and contributing to life-time ISA towards paying my mortgage for the first home?


Thanks,

eskbanker

prakhil13 wrote: »

I have an existing mortgage since 2010 and I am a first-time buyer.

Are you saying you were a first time buyer when you bought in 2010?

If so, then you aren't a first time buyer anymore as far as the LISA scheme is concerned - it's for those who will be buying their first property in the future so if you already have a propery then you're not eligible.

pphillips

You are still eligible to open a lifetime isa that you can access when you turn 60 but you cannot use it towards a mortgage for your first home if you have already completed the purchase.

prakhil13

Thanks eskbanker and pphillips for the reply.
It is sad that although my ongoing mortgage is for the first home, I cannot use lifetime ISA to increase my deposit to mortgage lender and decrease LTV.


If an early withdrawal can't be done to pay for the existing mortgage then there are certainly more attractive schemes in market to guarantee better returns either at post retirement/60 years age.

5amue1

Hi all. I was initially excited about the lisa, but having read about the exit charges I'm not 100% sure I will get one. If I end up buying a place in London within the next 5 years 450k sounds like a very middle ground house price for a first time buyer. In fact, doing a quick sum the average first time buyer pays 300k in London, so if house prices move at 8.5% per year in London (seems reasonable) then in 5 years the average first time buyer house price will be 450k!

So the question is, is it worth the gamble? The LISA exit charges are 25% including ALL INVESTMENT GROWTH. That's what I'm led to believe. So if you put 4k in at the start of every tax year and your investments do okay...say you get 5% return p.a then the exit charge after the 5 years is pretty large - just over £7k, £5k of which is the government money. With the LISA you'll make an extra £5.8k if you can use it, or lose £1.45k if you can't (compared to just investing the money at 5% p.a). The breakeven probability in this example is 20%. So if you can use the LISA 1 in 5 times you're breakeven/indifferent with not having one. Any higher probability and it was a good investment. So if I was to think there was a 50/50 probability of being able to use the LISA in 5 years, I should get one.

Sorry for the essay. I began this by wanting to say "be careful" but then fell in to the maths of it all.

ohwattagosiam

5amue1 wrote: »

Hi all. I was initially excited about the lisa, but having read about the exit charges I'm not 100% sure I will get one. If I end up buying a place in London within the next 5 years 450k sounds like a very middle ground house price for a first time buyer. In fact, doing a quick sum the average first time buyer pays 300k in London, so if house prices move at 8.5% per year in London (seems reasonable) then in 5 years the average first time buyer house price will be 450k!

So the question is, is it worth the gamble? The LISA exit charges are 25% including ALL INVESTMENT GROWTH. That's what I'm led to believe. So if you put 4k in at the start of every tax year and your investments do okay...say you get 5% return p.a then the exit charge after the 5 years is pretty large - just over £7k, £5k of which is the government money. With the LISA you'll make an extra £5.8k if you can use it, or lose £1.45k if you can't (compared to just investing the money at 5% p.a). The breakeven probability in this example is 20%. So if you can use the LISA 1 in 5 times you're breakeven/indifferent with not having one. Any higher probability and it was a good investment. So if I was to think there was a 50/50 probability of being able to use the LISA in 5 years, I should get one.

Sorry for the essay. I began this by wanting to say "be careful" but then fell in to the maths of it all.

I may be missing something here, but if you're a first time buyer and that's what you're using the LISA money for, then you won't incur any exit penalty, since that is one of the two reasons that LISA's are supposed to be used for.