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First-time buyers trick: Max LISA and Help to Buy ISA gains by timing it right

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First-time buyers trick: Max LISA and Help to Buy ISA gains by timing it right

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This is the discussion to link on the back of Martin's blog. Please read the blog first, as this discussion follows it.




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  • TaaarmTaaarm Forumite
    1 posts
    "Rule no. 3 – Definitely won’t buy before April 2018?"
    What is the advantage of having both a HTB / LISA over the 17/18 financial year, and investing into both? Why would you not transfer your HTB fund into your LISA in April '17 and just invest £200 a month into LISA (like you would in your HTB)?
  • Ed-1Ed-1 Forumite
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    Taaarm wrote: »
    "Rule no. 3 – Definitely won’t buy before April 2018?"
    What is the advantage of having both a HTB / LISA over the 17/18 financial year, and investing into both? Why would you not transfer your HTB fund into your LISA in April '17 and just invest £200 a month into LISA (like you would in your HTB)?

    Two reasons I can think of:

    The main one is the Lifetime ISA has a penalty for getting the money back out whereas the H2B ISA doesn't so saving into H2B ISA first is more flexible if you decide against buying later on.

    The second is interest rates on the LISA are likely to be lower than on H2B ISAs.
  • hjscoreshjscores Forumite
    9 posts
    Hi

    I know that paying off debts is the absolute key instead of saving as well however, I wondered if it would be worth me opening a HTB account now and saving the £200? This would be whilst I'm also paying off debt (that only has a 6% interest rate).
    I want to do this as I'm concerned that it'll take me two years to be debt free and the account might not be available then.
  • bigsi70bigsi70 Forumite
    3 posts
    Just helping my daughter with her and her boyfriends HTB and one of them has just reached the £1600 after 3 months and they have been offered a house - great. Looking at the solictor fees, they want £175 + VAT to claim the HTB money, meaning that the £400 bonus is effectively £190. More people ripping the youngsters of today off!!
  • "Rule no. 3 – Definitely won’t buy before April 2018?"
    What is the advantage of having both a HTB / LISA over the 17/18 financial year, and investing into both? Why would you not transfer your HTB fund into your LISA in April '17 and just invest £200 a month into LISA (like you would in your HTB)?"

    I was wondering the same thing...

    I was planning to transfer my H2B in April which will be £4000 and then put in a lump sum of £4000 into the LISA at the same time. Wouldn't this £8000 earn more interest over 1 year, even if perhaps at a lower rate than H2B, rather than putting £200 a month into H2B and then transferring it in April 2018?
  • Ed-1Ed-1 Forumite
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    Wouldn't this £8000 earn more interest over 1 year, even if perhaps at a lower rate than H2B,

    How would it earn more interest if it's at a lower rate?

    My plan is to keep feeding my high interest Help to Buy ISA throughout 17/18 and then transfer the part of the Help to Buy ISA built up before 17/18 into LISA in March 2018 (unless a miraculous LISA account becomes available that betters my H2B ISA before then), deposit an extra £4k into LISA, and then continue feeding both my H2B ISA and LISA from 18/19 onwards.
  • Ed-1 wrote: »
    How would it earn more interest if it's at a lower rate?

    My plan is to keep feeding my high interest Help to Buy ISA throughout 17/18 and then transfer the part of the Help to Buy ISA built up before 17/18 into LISA in March 2018 (unless a miraculous LISA account becomes available that betters my H2B ISA before then), deposit an extra £4k into LISA, and then continue feeding both my H2B ISA and LISA from 18/19 onwards.

    Obviously it depends on the interest rates that come out but for the LISA, if I transfer the money from my H2B on opening, which will be 4k by April 5th (which I'm currently getting interest of 3.5%), plus the 4k allowance I would have an £8000 lump sum earning interest from day one. Whereas with the H2B I would only be able to put in £200 per month so even if the interest rate is higher, the amount I'd be earning interest on daily or monthly would be lower as it's only dripping in.

    Also, in my situation, I will be using the funds from my LISA to eventually buy a house, so I can't continue to save into both a H2B and a LISA in the 18/19 tax year as you can only use the bonus from one to put towards a house (Except in 17/18 when you are allowed to transfer money saved into the H2B before 5.4.17 into the LISA without it counting towards the LISA limit).

    So, I am guessing I will need to see the interest rates before making a decision but any more thoughts on the best plan of action?
  • Ed-1Ed-1 Forumite
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    Obviously it depends on the interest rates that come out but for the LISA, if I transfer the money from my H2B on opening, which will be 4k by April 5th (which I'm currently getting interest of 3.5%), plus the 4k allowance I would have an £8000 lump sum earning interest from day one. Whereas with the H2B I would only be able to put in £200 per month so even if the interest rate is higher, the amount I'd be earning interest on daily or monthly would be lower as it's only dripping in.

    Any money is better in a higher rate account than a lower rate account regardless of whether you drip feed it in.

    The £4k you already have in the Help to Buy ISA will earn 3.5% AER for as long as you leave it in there before shifting it into the LISA. It makes no sense at all to shift it from a 3.5% account to a lower rate LISA sooner than necessary.

    For example, if a LISA becomes available paying 2% and you shift it in at account opening you have £8k earning 2% for the full year.
    That is £8,000 x 0.02 = £160 interest.

    If you keep £4k in the Help to Buy ISA for near enough the full year until transferring it to LISA at the final opportunity before 6th April 2018 you'll get just under £4,000 x 0.035 = £140 interest from the Help to Buy ISA and £4k x 0.02 = £80 interest from the LISA. That's £220 interest rather than £160.
    Also, in my situation, I will be using the funds from my LISA to eventually buy a house, so I can't continue to save into both a H2B and a LISA in the 18/19 tax year as you can only use the bonus from one to put towards a house (Except in 17/18 when you are allowed to transfer money saved into the H2B before 5.4.17 into the LISA without it counting towards the LISA limit).
    This depends on how much savings you have in total, but there's nothing wrong with continuing to save into a Help to Buy ISA (taking advantage of the high rate) alongside a LISA and then moving it out of the Help to Buy ISA into the LISA at a future date if and when the high rate drops or is no longer competitive (obviously this would count against the £4k LISA allowance in future years).
  • AR2012AR2012 Forumite
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    [FONT=&quot]Need a bit of clarity on the timing[/FONT]
    [FONT=&quot] [/FONT]
    [FONT=&quot]I have a H2B Isa with Halifax (Was 4% now 3.5%) with £3800 + interest. In March 2017 it would hit £4200. The LISA limit is £4000. So if I drop a lump sum of £1600 into the LISA and keep feeding the the H2B ISA (£200 p/m) till March 2018. Then transfer the H2B balance (£6600) into the LISA. Would this work?[/FONT]
  • Is this correct?

    If I have saved £3600 in HTB ISA during 2016/17, and transfer my money before April 18 to a LISA, and then save the max £4000 (max for 17/18 tax year), will I get gov bonus of £1,900? (7,600 total savings). Then if I wanted to buy after April 2018, would I be able to put in another £4000 (18/19 tax year max) and benefit from a total years gov bonus of £1000? as the bonus after the first year, goes from yearly to monthly interest?

    Dates:
    16/17 April - open H2B with years max £3600
    Transfer during April 2017 to LISA
    April 2017/18 - Add additional years max savings to LISA- £4000
    April 2017/19 - Add another additional years max savings to LISA - £4000

    Total Savings before bonus: £11,600
    Total Gov bonus: ????? £3,500 ????? if buying between may 2018 / april 19
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