1st time buyer - stay with HTB ISA or move to LISA?
JustAnotherSaver
Posts: 6,709 Forumite
Not for myself as i already bought my first home but i've had a couple people ask me and i was unable to answer them really.
They are currently living with parents and both opened accounts with Halifax right at the start of the HTB ISA release. One has paid in the full amount (£200pm) throughout (bar about 3-4 months) and continues to do so whereas the other pays in less, £50-£60pm I was told.
The interest rate is currently 3.50% on the account, down from i believe 4.00% when it was opened.
I know investments are ideally looked at in 5 year minimums and both do not believe they will be in a position to buy within that timeframe. They are looking at more the 5-10 year period.
I know with the HTB ISA as it stands, £10,000 put into it will always be £10,000 at the end of the day +interest & bonus whereas in the S&S LISA it may not but over at period of 5-10 years would it be better to put it into a S&S LISA (if so then are any providers seen as best)? If they decide to be renters (as i think one of them probably will) then it could always at least end up being retirement money.
Since 3.5% isn't a terrible interest rate they were both just wondering whether it's best to stay with the HTB or move to the S&S LISA as well as is there a cut off point where that HTB ISA money can be transferred to a S&S LISA?
They are currently living with parents and both opened accounts with Halifax right at the start of the HTB ISA release. One has paid in the full amount (£200pm) throughout (bar about 3-4 months) and continues to do so whereas the other pays in less, £50-£60pm I was told.
The interest rate is currently 3.50% on the account, down from i believe 4.00% when it was opened.
I know investments are ideally looked at in 5 year minimums and both do not believe they will be in a position to buy within that timeframe. They are looking at more the 5-10 year period.
I know with the HTB ISA as it stands, £10,000 put into it will always be £10,000 at the end of the day +interest & bonus whereas in the S&S LISA it may not but over at period of 5-10 years would it be better to put it into a S&S LISA (if so then are any providers seen as best)? If they decide to be renters (as i think one of them probably will) then it could always at least end up being retirement money.
Since 3.5% isn't a terrible interest rate they were both just wondering whether it's best to stay with the HTB or move to the S&S LISA as well as is there a cut off point where that HTB ISA money can be transferred to a S&S LISA?
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Comments
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There are very few LISA providers at the moment but there will be more later this year, both S&S versions and cash versions. Certainly no need to give up the high HTB rate and transfer to a different product any time soon.
The cut off point for transferring previous year (2016/7 and earlier) contributions over from a HTB ISA into a LISA without it using up any of the current year LISA allowance is the end of this tax year (complete the transfer process by 5 April 2018). After that point any transfers of money from any other ISA into a LISA will use up that years £4k annual subscription allowance.
For the person who has only been saving £50-60pm, he/she will only have a couple of thousand by that point and if they're only going to carry on saving at that level (i.e. under £1k of new money each year) it is not really a big deal whether they use the formal transfer process or not by next April, because they'll have plenty of LISA allowance to spare over the coming few years - as long as they get round to opening the LISA and transferring amounts in before they turn 40 when the door will be closed to them for opening new LISA accounts.
However for the person who has already been maxing out the allowance and has more put away, it would make total sense to move the HTB money over to a LISA next Jan/Feb / March when the other LISA providers have had chance to get their products up and running. On opening the LISA they could transfer their old contributions and current year contributions from the HTB and maybe even put some extra in, because the £200pm this year that they've been doing is less than the £4k 2017/8 year allowance. The more you put away, the more free money you get towards the house purchase.
For a relatively short term objective of less than a decade it can make a lot of sense sense to stick with cash rather than stockmarket-based investments; such investments are better suited to longer term goals like retirement. Cash LISAs will be launching in next few months and there's no rush to act today. Basically as you get through the decade there will be less and less time for you to be able to afford a crash and then wait several years for a recovery so you would need to use lower risk products as you got closer to your objective. You don't want to have to delay buying your dream house a couple of years because you lost 20-30% of the deposit after you were just getting to the end of eight years of saving/investing for it.
However one option if they think they will definitely be taking more than five years but not sure how much more, would be to move their existing money into a S&S LISA but for all the other later years just do cash LISAs. That way they will get some longer-term investment growth (with some risk) for the initial few thousand they've already put away, but all new money is going into cash without investment risk. That might be a reasonable compromise depending on their own attitude to risk and their investing experience.
As the cash LISA accounts only take limited amounts of deposits per year, you might expect the rates to be better than some other type of accounts. Although perhaps they will be a little worse, because you are after all getting free government money and if the market is not very competitive some banks might not put much effort in. Really it remains to be seen how competitive the market will be once everyone who wants to launch a product has launched their product. So, come back in six months and revisit the equation with them then.0 -
That'll do nicely. Thank you. While their accounts are getting 3.5% and based on what you've said i think they'll likely stick as they are for now but as you say we may be seeing you again in 6-7 months time0
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