Using a Stocks & Shares LISA to buy a house: The technicalities of getting my cash

frugalpenguin20

Hello all! bit of a complex one here, hopefully someone can help!

If I have some money invested in index funds and corporations  within a LISA,  how can I use the LISA (get the money) when I buy a house:
Do I have to sell my assets to create cash that is held in the account, or are they sold for me automatically?  
Do I have to use the full balance, or can I retain some of my investments?

Many thanks, 
FrugalPenguin20

Alexland

Q1) It depends on the LISA provider you are using. The DIY platforms (such as HL, AJ Bell, etc) would want you to login to sell down the investments to cash (and possibly wait for settlement) before the solicitor can withdraw. The ones providing a managed investment service are more likely to do this for you. You would need to check with your provider. Remember that S&S investment is intended for periods of at least 5 years preferably much longer and you would want to derisk the asset allocation in the 3-5 years leading up to withdrawal. Most people using a LISA to save up for a qualifying property purchase are likely to find Cash LISA accounts more suitable. S&S LISAs are generally intended for people investing 20+ years for age 60+.

Q2) When purchasing a property using a LISA you can instruct your solicitor to make a partial withdrawal which would leave the LISA open with the remaining balance for further contributions in the current (if you have remaining allowance) or future tax years. This is particularly important if over 40 as you would not be able to open a new LISA account (except perhaps to transfer across an existing open LISA account if the new provider accepts LISA transfers)

frugalpenguin20

Thanks Alexland. I am in my 20s with a diy lisa.  I want to use the LISA as a supplement to my pension when I am 60,  cos i don't fancy retiring at 80, so I am not interested in derisking to low risk options able to open a Help to ons currently.

However,  I would like to be on the property ladder in the next 5-10 years or so, so I need to think about how much I am saving and putting aside and how much I should pour into the S&S LISA or consider a Cash LISA as you suggested. Thank you for your clear and measured explanation

Alexland

If your property purchase is in the 5-10 year range then using a LISA to support is a tricky decision as the property price cap might become more restrictive over time as inflation generally pushes house prices up although it's not a linear journey. Historically the government did not increase the price cap on the HTB ISA and so it was becoming quite restrictive towards the end of the product being available to new customers and more so to those who don't claim the bonus until 2030. Still in some areas of the country the price cap may still be less of an issue.

There is also the possibility that you might want to buy with a partner in which case your combined earnings might afford you a property greater than the LISA price cap. Still with a 5-10 year timeline S&S LISA investment may be suitable but I would tend towards balanced mixed asset funds rather than a 100% equities investment in funds, companies, etc to limit the volatility incase the opportunity to buy comes forwards.

If you are using a LISA to concurrently invest towards both the property purchase and retirement you might wish to hold 2 funds with different risk profiles so you can be clear which money is intended for which purpose and likely withdrawal timeline. Although given the annual contribution limit is only £4k pa then most people would only use the LISA for one or the other purpose in any given tax year.

md258

If you're confident that the property that you will buy will meet the LISA criteria, then for the next 5-10 years I would put all of my money towards the house purchase and leave retirement for later.

This is because the larger deposit that you would have may:
Allow you to bring the purchase forward if required.
Put you in a lower LTV bracket, meaning you would have a cheaper mortgage.
Allow you to buy a bigger house that will reduce the number of times you move house.

I would have thought that as long as you are disciplined with your money, paying less towards retirement now would allow you to contribute more later, and you would end up better off. If you don't end up benefitting from one of the scenarios I've listed, you can move the remaining money to a S&S LISA or your pension when you move into your new house and you would only have lost out on some share price increase/dividend compounding.