Keep or ditch the LISA?

Harpix42_2

Hi everyone,
I've found the advice here so helpful over the years and wanted to ask another few questions if that's ok.
I'm in the process of buying a house and unluckily (or luckily depending on how you look at it) because of the house price I've missed out on being able to use my LISA savings AND my help to buy ISA savings. So obviously I have to close the help to buy which leads me onto my first question:
1) I assume it's not a terrible idea to move my help to buy ISA into a cash ISA or is this not possible?
Now I cant use my LISA for a property purchase but I guess I could still use it as a pension pot thing. Although I'm only in my early years of adulthood and I have a pretty reasonable NHS pension to come .
2) In my mind it makes more financial sense to withdraw the LISA and overpay the mortgage (which would incur no penalty). Am i making a huge mistake in this?
And finally if I do withdraw the money from the LISA i'm confused about the penalty I would pay...
3) Lets keep it simple and say someone has paid £4000 into a LISA and got £1000 paid in by the government. And made £30 of interest or something. So you've got £5030 and you want to withdraw all of it. How much do you get back roughly? About £3900 or something like that?
Thanks for any help!
Harpix

grumiofoundation

1) Is possible but do you a) need to use a cash ISA at all (are you going to pay interest on savings/exceed ISA allowances?) and therefore do you actually need to transfer the ISA (i. e. using ISA transfer process) or would it make any difference to you if you just withdraw from HTB ISA penalty free (don't know if this is actually easier - not been through process of closing/transferring HTB ISA)?
Interest rates in cash ISAs are generally lower than in non-ISA accounts. 

2) Huge mistake in what sense? In the long term it is likely using the money for retirement savings (whether stocks and shares lifetime ISA, pension or stocks and shares ISA) will be return more than the interest rate on your mortgage. However overpaying may be preferable for you, may get you into lower LTV band for lower interest rate. (guessing mortgage rate is sub 2%?). Are many threads on this forum, and articles online of benefits of overpaying vs investing (whether pension or no pension) and various 'schools of thought' - and your wider financial situation will impact what is 'best'...

3) As it currently stands withdrawal penalty is 20% (normally 25% but suspended due to covid). So £5030 becomes £4024. 

Harpix42_2

1) thanks I think I'll withdraw and be able to make the money do more elsewhere
2) ok so it's a close call
3) and this is really helpful to know. Maybe now is the best time to withdraw and take advantage of the reduced penalty.
Thanks for your help!!

masonic

The real question for the LISA is would you ordinarily want to use this as part of your pension provisions? There is a place for LISAs for those who are basic rate taxpayers and expect to pay basic rate tax on some of their pension in retirement, since the LISA sit between tax free and taxable pension income and increase your overall tax efficiency. It would be unwise to keep the money in cash if using for retirement as it will not keep pace with inflation over the years, so a transfer to a S&S LISA would be advisable (note you'll struggle to find providers who will accept a LISA transfer after you reach age 40).

If you do wish to withdraw, you will get back what you paid in plus a slightly reduced rate of interest, so no great loss.

For the HTB ISA, check you can actually achieve a better rate of interest elsewhere - HTB ISAs were generally amongst the best paying savings accounts, if not you may as well hang onto it until you've completed and then withdraw the cash and close down.

Albermarle

You see many ( older than you ) posters on this and the pensions forum , who have a DB ( defined Benefit ) pension , often with the NHS or similar . However to retire early they need another source of retirement income for a few years before taking the DB pension and then the State Pension. Often it is another separate private pension but in future years it could also be a maturing LISA that helps to tide them over.
So it might not be such a bad idea just to keep it going , especially with the 25% top up . AS said above if you do go down this route then you should change it to a Stocks and shares Lisa as over a long period of time you will get better returns .