LISA... is it worth it?

harpix42

Hello,

I'm weighing up the pros and cons of a LISA.

I don't own a home and i'm looking to try and buy one. It probably won't be in the next year. I live in Oxford where house prices can be high. I have a help to buy ISA. I have a few questions to try and work out what is best:

1) If I buy a house within a year of setting up the LISA I would have to pay a penalty to remove the money?

2) If I buy a house over 450,000 I would have to pay a penalty to remove the money?

3) I can have both a LISA and a Help to buy ISA.

4) the benefit of help to buy ISA is that I can withdraw money without a penalty and the interest isnt too bad (2.25%) BUT I have to buy a house under 250,000 to get the benefits.


So i'm unlikely to ever get the benefits from the Help to Buy ISA especially with house prices in Oxford. However if I get a house within the next year OR if its over 450,000 the LISA will screw me over too... unless I use it for retirement... but i'm probably 30-40 years away from that

Any extra things people would recommended I take into account?

I think it might be best to stick with the Help to buy ISA and not risk it...

eskbanker

The answers to all of your numbered questions are 'yes'.

It's quite a big gap between 'under £250K' and 'over £450K' and, as you point out, under or over a year makes a big difference too, so the best thing would be to work out what a likely property value would be, plus how much of a deposit you'll need, how much you'll be able to get and how long it'll take to accumulate it (and other costs), and then plan a realistic timescale from there....

I'd also recommend you open a LISA now anyway and fund it with a token quid, just to start the clock ticking and keep your options open.

Alexland

I think it really depends on how likely you are to either buy within 12 months or at over £450k.

If both of these are outside probabilities then the high chance of a 25% bonus is worth much more than the low risk of a circa 6% loss of capital.

Alex

bowlhead99

harpix42 wrote: »

4) the benefit of help to buy ISA is that I can withdraw money without a penalty and the interest isnt too bad (2.25%) BUT I have to buy a house under 250,000 to get the benefits.


So i'm unlikely to ever get the benefits from the Help to Buy ISA especially with house prices in Oxford. However if I get a house within the next year OR if its over 450,000 the LISA will screw me over too... unless I use it for retirement... but i'm probably 30-40 years away from that

There is no real 'harm' in opening a HTB ISA because as you say it's penalty free to withdraw if you don't use it to buy a qualifying property.

However, realistically if you are imagining your first-time-buyer property is going to perhaps cost over £450k it doesn't seem likely that you'll be able to get to use the bonus on a a HTB ISA which only allows £250k properties.

So instead of throwing the £200pm into a HTB for a bonus that never happens at an interest rate around 2%, you could perhaps stick it into a non-ISA regular savings account elsewhere (some accounts pay 5% on regular monthly contributions).

But having said that, if you're looking at £400k+ properties, £200pm is going to be only a small fraction of what you need as a deposit, so you must have other savings elsewhere and have perhaps "maxed out" most of the other leading non-ISA accounts. So, no harm in using the HTB really if you've done that.

Comparing HTB to LISA, the latter offers a higher property value limit but a really key feature is that it will accept contributions of £4k per tax year year rather than only £200pm, so you will be able to build up faster to a bigger value, and the bigger value you have, the bigger amount of free cash you get.

For example in a LISA you can do £4k now, 4k in a couple of months (6 April 2019), £4k next year (April 2020) and £4k in April 2021. So in only 26 months time (6 April 2021) you have £16k, getting you £4000 of bonus if you stop there

By contrast in a HTB you can put in £1k now and then only £200pm, by April 2021 you only have about £6k not £16k. So the bonus would be more like £1500 (if you're even allowed to get it at all, depending on price cap) instead of £4000. So the LISA is a lot more lucrative, as well as being more obtainable because few properties in your area are available for the LISA price cap.

I think it might be best to stick with the Help to buy ISA and not risk it...

If you use the LISA you are potentially able to get £4k of free money in a couple of year's time. If you followed that payment plan example above and then ended up completing in a property 'early' by January 2020 (which you have said is unlikely) you would have put £8k in by that point; if you want to withdraw it early for the property purchase rather than keep for retirement, you'll lose a net 6.25% penalty on the £8k withdrawn, which is only £500.

A risk of losing £500 in the unlikely event that you force yourself to complete the purchase in the next 12 months (remember the buying process can take several months in itself), does not seen much of a 'risk' compared to the upside of £4000+ of free money you might be getting if it all goes well

The slightly bigger risk is that you do eventually buy a property but it takes a number of years from now until you're ready and the property costs over £450k. Then you would have more money in the LISA so the penalty at 6.25% is more pounds. Although presumably between now and then you would at some point come to the realisation that "there's no way I'm going to be able to get a first time buyer's property that I like for £450k" and you'd stop adding money to the LISA so your penalty is not going to be huge.

In the grand scheme of things, if you are buying a £500k house, the 6.25% penalty on £10-20k LISA contributions is not massive - £625 to £1250. If you were haggling with the seller of a half a million pound house, £625 is pretty much nothing. Whereas the potential bonus on that £10-20k when buying a £449,900 house is £2500-5000. Nice work if you can get it.

So, in your shoes I would probably open a LISA and take the gamble on paying the maximum into it, rather than bothering with the HTB. If the likely outcome in your mind is that you are going to be spending over £450k on your first home, then the HTB bonus wouldn't get paid and all you get from that product is a small amount of interest on a limited £200pm contribution. The interest on £200pm is nice to have, but on its own that interest isn't going to help you buy much of a £400-500k house.

harpix42

WOW! I love these forums, such fantastic answers Thank you all so much!

I think I'll take the risk and go for the LISA.

Thanks again!

Alexland

bowlhead99 wrote: »

For example in a LISA you can do £4k now, 4k in a couple of months (6 April 2019), £4k next year (April 2020) and £4k in April 2021. So in only 26 months time (6 April 2021) you have £16k, getting you £4000 of bonus if you stop there

bowlhead99 wrote: »

If you use the LISA you are potentially able to get £4k of free money in a couple of year's time.

Without wanting to correct the great bowlhead99 but remember with a LISA you do not claim the bonus on the property purchase (as you would with a HTB ISA) but it is added into the account around a month or so after the contribution occurs so technically you get given the free money very quickly.

The main concern is the free money (and a bit more) gets taken back.

Alex

bobobski

Just to add - we just used the LISA for our property purchase a couple of months ago. It was a faff and a half and frankly a lot of heartache trying to get a conveyancer to understand what she had to do when she'd never dealt with it before (the form needs to be with Skipton at a very early stage of your purchase) and frankly Skipton didn't understand what was happening half the time...... And yet I have no regrets and would do it all over again. The hourly rate I got "paid" dealing with the LISA faff was still probably much higher than I get paid at work, and the HtB ISA just isn't realistic if you live in an expensive non-London town.

Good luck!