Help to Buy ISA full... what now?

Smegasaurus

Ok so just looking for a bit of advice. 
I set up a H2B ISA a fair few years ago (pre-LISA) and I've just realised that it's almost at 12k, which means max amount for gov top up. I've been looking into this and although LISA would give me access to more gov top up as I continue to save i would only be able to move 4k/year into a new LISA from H2B .... have i got that right? Which would mean it would take 3 years of LISA payments to be in the same position I am now? So I suppose I could just continue with H2B at about 2% AER. 
I have a few other savings accounts around with various pots but interest rates are not exactly fab anywhere so the 2% on the H2B may just be as good as any?! 

I suppose the main question is will I buy in the few years until I can shift to the LISA. I probably could afford to now. Have about 22k in savings + H2B bonus but I'm about to go back to uni and therefore be on a student stipend for 3 years. I dont want to over stretch myself when my income is changing (reducing but probably not by much) and would probably be able to borrow more when uni if finished due to higher income. BUT I dont live in an expensive area and mortgages on stipends are possible and if the right house came up.... 

I doubt anyone can help massively but any thoughts would be welcome! Never thought that I would max the H2B ISA when I opened it!! 

bowlhead99

You're right that you would only be able to add to the LISA at maximum of 4k per tax year. But if you presume you won't buy within the next 3 years, then you could put £4k in now, a second £4k into it one year from now, another £4k in two years from now, and £4k in three years from now, and you would be at £16k, so would get a whole £1k of extra bonus. And you can keep going beyond that to eventually have your entire deposit in a LISA, getting bonus on the lot.

With LISA there is a penalty if you withdraw without using it to buy property (unless you use it as a retirement fund and wait until you are 60+) and you can only get the bonus from one product or the other. So if you bought a year from now you might only have £8k of contributions in the LISA and less than that in the HTB ISA, so overall would be getting a lower bonus than if you had just stuck with the HTB.

I have a friend who did buy in a cheap area when on a student stipe, it's going back a while and affordability checks were not so strict. I remember her being annoyed that in those days it was more of a rule of thumb of a salary multiple without considering how much spare cash you had, and she didn't have much tax to pay on her low income so had a relatively better 'take home' per pound of salary than some higher-income friends, but the bank didn't really care about takehome and outgoings. These days they do, but you'll generally start off in a nicer 'first property' if you leave it until you have a proper salary after the course is complete.

Of course, assuming the effects and after-effects of COVID trash the property market over the next year or so, there might be some relative bargains appearing within the next three years compared to today's prices, depending where you are in the country. But difficult to speculate.  The bottom line is that if you don't think you're realistically going to buy in the next two years, but will buy eventually, you should be OK to move to LISA because you'll have added £12k by April 2022 if you put £4k in today and at the start of each of the next couple of tax years.

In the meantime, the HTB interest rates are relatively decent so no need to close that account while you build up the other.

Smegasaurus

Thanks for your advice - very well considered. 
So thinking about it ... what I could do is:
Open a LISA with a small amount to 'start the clock' because I can have both a LISA and H2B ISA. I can then either pay 4k into LISA nowish or anytime in the next year, potentially from other savings. This leaves my H2B ISA sitting at 12k+ earning a decent enough interest rate. Then I can keep both going until the H2B ISA money is needed, which I can withdraw (penalty free) but no bonus - bonus instead coming from LISA. 
I think that the COVID-19 situation and possible knock on consequences are making me a bit hesitant. If house prices DO drop then I could be in a position to get a good deal, but realistically I think that I'm more likely to wait until student days are over (for the second time!) to buy.