LISA and property price limit

rajdav

Hi,

I may being unduly unrealistic on many levels however I have a nagging concern about setting up a LISA for my daughter about to go to Uni. She is about to do a 4 year degree in Bath and I have £16000 which I want to invest. The LISA is an attractive way of turning this into £20000 in a staged investment. The concern is what if the property price exceeds £450,000. This may not be likely but it is not impossible to imagine a starter home in Bath costing this amount. What would happen if the house investment exceeds £450,000?

Thanks

Rob

kidmugsy

rajdav wrote: »

The concern is what if the property price exceeds £450,000. This may not be likely but it is not impossible to imagine a starter home in Bath costing this amount. What would happen if the house investment exceeds £450,000?

Is there any particular reason to assume that she'll be working in Bath when she eventually wants to buy a house?

rajdav

I’m just using that as a possible example, we live in St Albans and there is little difference. It’s just the general principle I’m interested in - what if the property price exceeds £450,000? I fully appreciate this may not be likely but it is my only nagging doubt.
Thanks

Zorillo

If the property price is higher than £450k then the opportunity to use the LISA for a qualifying house purchase will be lost and the money won't be accessible without penalty until your daughter is 60.

eskbanker

I've seen this concern expressed previously in the context of the Help to Buy ISA scheme with its lower (non-London) limit of £250K, but surely anyone starting out on the housing ladder and earning enough to fund a massive £400K+ mortgage would be unlikely to lose too much sleep over missing out on a few grand's worth of LISA bonus?

Alexland

eskbanker wrote: »

I've seen this concern expressed previously in the context of the Help to Buy ISA scheme with its lower (non-London) limit of £250K, but surely anyone starting out on the housing ladder and earning enough to fund a massive £400K+ mortgage would be unlikely to lose too much sleep over missing out on a few grand's worth of LISA bonus?

It's less of an issue with the HTB ISA because the interest rate is fair and the money can be withdrawn without penalty. In the case of a LISA it's more of a commitment as the interest rate is poor and there is a modest penalty. As such in the OPs situation they could end up withdrawing 10% to 15% less than if they had put the money into a higher interest account.

In terms of leveraging a £400k mortgage this might be quite possible if buying jointly. When my wife and I bought our first properties individually, early in our careers, we had combined mortgages of £250k and that was 10-15 years ago while interest rates were still normal. At the time we would have really noticed missing a few thousand pounds.

Alex.

eskbanker

Alexland wrote: »

It's less of an issue with the HTB ISA because the interest rate is fair and the money can be withdrawn without penalty. In the case of a LISA it's more of a commitment as the interest rate is poor and there is a modest penalty. As such in the OPs situation they could end up withdrawing 10% to 15% less than if they had put the money into a higher interest account.

Yes, agreed that the LISA is more restrictive than HTB and is potentially a bit of a cul de sac because of that.

Alexland wrote: »

In terms of leveraging a £400k mortgage this might be quite possible if buying jointly. When my wife and I bought our first properties individually, early in our careers, we had combined mortgages of £250k and that was 10-15 years ago while interest rates were still normal. At the time we would have really noticed missing a few thousand pounds.

I'm unconvinced that aggregating the values of two separate starter homes and mortgages together like that represents a valid comparison, but, putting aside the LISA retirement aspect, the aim of both schemes is to help first-time buyers get onto the housing ladder, and I'd still contend that a couple earning enough to sustain a mortgage in £400K+ territory are unlikely to be able to justify a genuine need for taxpayer assistance!

Alexland

eskbanker wrote: »

I'd still contend that a couple earning enough to sustain a mortgage in £400K+ territory are unlikely to be able to justify a genuine need for taxpayer assistance!

I'm beyond any concept of expecting the tax system to be fair or justified based on needs. My experience is the amount of tax you pay in any given year as a proportion of your income is pretty random depending on government policy, precedent and the quality of your financial planning.

With LISAs there was a government decision that those between 18 to 40 should get something and this was the best they could come up with. We certainly don't have any need for the bonus but have previously found ourselves paying lots of tax (mostly due to sub-optimal planning) so expect it all to average out to a reasonable level of taxation over our lifetime.

If we had previously been more efficient with our pension contributions (contributing less when we were basic rate and more when we were higher rate) the result would have been about the same.

Alex

sully1311

Not being rude but if your daughter is able to afford a 450k+ house then they don't really need a LISA for a first time house purchase.

My opinion is that LISAs (1st time buyers) are for those struggling to get on the housing market.

I'd just be thankful that your daughter will be in a position to be able to afford a 1st house for that much!

rajdav

As I said, this is all assuming a great deal and is pretty unlikely. I just wanted to know the answer to a technical question and not receive a value judgement about it.