Lifetime ISA and Buying Off-Plan

Danny-r

Wondered if anybody has any experience using a LISA and buying a new build off-plan. Unfortunately the person we deal with at the company is on A/L for 2 weeks so can't address it with them until then which is leading to a bit of worry.

We have our deposit saved up in our LISA, 10% (first time buyers). We've placed a reserve on a plot and began speaking to a conveyancer who sent us the paperwork to release the LISA funds.

It was at this stage we noted the time limits. The sale must be completed within 90 days, at which stage you can apply for a 60 day extension, and then a final 30 day extension.

The property build begins in November. The official date for contract exchange is 3rd of January although I've been told nothing really happens in that week as nobody is in the office so it'll likely be the 2nd week of January.

The stated expected build completion date is Q2 2020. That would fall within the 180 day deadline for the LISA, but of course delays often happen with building, especially with it being built over the winter.

Has anybody had any experience with this kind of situation. LISA's are pretty common so I'd assume I'm not the only one?

eskbanker

I can't speak from direct experience but wonder if your conveyancer can include some sort of clause that imposes a late completion charge/discount on the builder that equates to the 25% withdrawal penalty you'd have to pay if the LISA money couldn't be used within the 180 days?

Danny-r

I'm hoping it could be a lot more simple than that and either they agree to delay the deposit or they agree to return it temporarily.

Everyone seems to have dealt with HTB ISA's but not LISA's, which amazes me because LISA's are such better value.

eskbanker

Danny-r wrote: »

I'm hoping it could be a lot more simple than that and either they agree to delay the deposit or they agree to return it temporarily.

Yes, agreed that either of those would work too - it just depends on what your conveyancer can negotiate with the builder.

Danny-r wrote: »

Everyone seems to have dealt with HTB ISA's but not LISA's, which amazes me because LISA's are such better value.

It's likely to be a combination of factors, but primarily timing, in that it's been possible to buy with a HTB ISA since February 2016, but only since June 2018 for LISAs. Coupled with the relatively widespread embracing of HTB ISAs by the industry, versus a pitifully tiny number of LISAs launched to market (especially the cash variant that's more suited to first-time buyers), it's no real surprise that the latter won't have been used so often....

busybee93

We're considering reserving a new build off plan but we have a good chunk of our deposit in a LISA. The problem we've noticed is around the time limits for completion. It is going to be a bit of a problem to complete 90 days max after exchange! Obviously we don't want to pay the LISA withdrawal fee and want to get the bonus. I'd be grateful if you could share your experience. Thanks!

eskbanker

busybee93 said:

It is going to be a bit of a problem to complete 90 days max after exchange!

As mentioned above, 90 days isn't actually the maximum, as it can be extended by 60 and then 30 more if needed, so the real max is 180 days.

https://www.gov.uk/guidance/lifetime-isas-for-isa-managers#withdrawals-for-first-time-residential-purchase:

When a property purchase is proceeding towards completion but is not expected to complete within 90 days of the funds being withdrawn from the LISA the investor’s conveyancer can ask the LISA manager for a 60 day extension followed by a further 30 day extension, if required.

busybee93

Thank you eskbanker. Hopefully we will be able to complete within that timeframe.

nreyn

Hello, any further update on this please?

We are in a similar situation.

We are looking to reserve an off-plan property in the next 1-2 months, however I have heard that the developer will want the deposit paying and exchange done within 28 days of the reservation. Our LISA (which holds a big chunk of our deposit) won't be withdraw-able for another 5 months, so we won't actually have the deposit funds available until nearer the completion time of the build. 

Does anyone have any experience of when the deposit is needing to be paid on off-plans, using the LISA? We'll be doing a 5% deposit on help to buy btw, if that changes anything?

Thanks

Danny-r

Apologies to nreyn, I wasn't notified of your post but came here to post my experience as there was a distinct lack of info when I posted originally. 

So here is our timeline.

Oct 2019 - Viewed Property and Placed £500 Reservation Fee.
Jan 2020 - Contract Exchange, LISA Clock Starts

Property was originally due to be complete in April 2020, although we were told from the off it would be more like May 2020. Then COVID kicked in and the site shut down for probably a month, as well as a week lost due to the scaffolding company going bust so they had to be taken down and re-put up, and then weeks lost due to weather. We got the keys 28th August 2020.

Inbetween all of that we had received communication from Skipton Building Society each time our conveyancer had requested an extension. I was aware the initial period was 90, and then an extra 60, and then an extra 30.

Both me and my wife had a LISA. My 30 day extension e-mail notification actually stated 60. This was also what my conveyancer received. I queried it with the conveyancer but he did little more than state they've requested an explanation. Nothing happened.

I ended up contacting Skipton myself, and they informed my that although it stated 60, it was an error and was in fact 30. They could not be lenient as it was HMRC administered and I had a matter of days to return the money.

What ensued was chaos. It was a simple job made chaotic. I needed the builder to release the funds back to the solicitor to put back into the account, and to then redraw them out. It took me about a week to resolve of back and forth. Luckily I was on A/L and wouldn't have managed it otherwise, but it ruined that week. It was a full time job. At one point my conveyancer even stated "You may just have to accept the penalty charge". This was early on, with plenty of time to resolve it.

Eventually the agreement was that I would pay an additional 5% to the builder as a holding fee, so that the builder always had the minimum amount on file, increasing the amount they had up to 15%, but they would then release 10% back to the conveyancer. It was done with about 24 hours to spare. The conveyancer then release 5% back to the builder, but refused to release the other 5% back to me. The builder had to lay into the CEO of the conveyancer's company and push for it to be released.

nreyn

Wow that sounds like a nightmare Danny-r! I'm glad it all got sorted and you're in now.

Here is what happened with ours, if anyone finds this thread in a similar situation to us.

We wanted to reserve in Nov 2020, but our LISA wasn't eligible for withdrawal until June 2021. We agreed with the developer that we would pay a reduced deposit on exchange, and then pay the balance on completion (which was due to be August 2021), meaning our LISA would have been eligible for withdrawal. 

They said apparently this is quite common, and they have had people exchange on £1 before! As it makes you legally bound to pay the money, so they will get it eventually. I am sure this only works with the larger house builders, as smaller ones may need your deposit to carry on the build.  

Turns out our completion has been delayed due to loads of factors, so it's looking like November for us to complete. All the while we've actually only paid 1% to the developer.