LISA and investment choices towards first home purchase

ljayljay

I am trying to advise my son on the best approach to afford a deposit on a property at some point in the future. This is unlikely to be for at least 5 years, maybe more.

Currently he is contributing £200 pcm to a Santander HTB cash ISA with 0.75% interest. Since the total is now £13K he has maxed out the bonus available if used towards a house purchase.

Contributing £300 pcm via Cavendish (now Fidelity) S&S ISA in a range of managed funds that has so far done quite well & totals around £2.5K.

He has a further £15K in a mixture of NS&I accounts & is aware that the interest rate is reducing to almost zero so will need a new home for this. He is also happy to invest a large proportion of this if sensible to do so. So, all in all he is in the fortunate position of having approximately £30k in savings/investments.

He has recently been offered a 3-year accountancy apprenticeship earning around £19K pa (with career average DB scheme). He is living at home with low outgoings, apart from housekeeping of course.

Since he is unable to receive any additional bonus from the HTB ISA I’m thinking it would now be a good time to open up a LISA or maybe two.

I am aware that you are only able to contribute to a single LISA each year but was wondering if for example it was possible to open up a cash LISA in year 1 followed by a S&S LISA in year 2 & contribute to each bi-annually? If so, would it then be possible to cash in both at the same time towards a house purchase or do the rules only allow one of the LISA’s to be used?

My thinking was that this would balance his risk & he could initially start transferring over the monies from his Santander HTB ISA because after 4 years the bonus in the LISA’s would be more beneficial.

I am probably over complicating this so any advice on the above or views on a better financial strategy would be most welcome.

bowlhead99

ljayljay said:

I am aware that you are only able to contribute to a single LISA each year but was wondering if for example it was possible to open up a cash LISA in year 1 followed by a S&S LISA in year 2 & contribute to each bi-annually? If so, would it then be possible to cash in both at the same time towards a house purchase or do the rules only allow one of the LISA’s to be used?

My thinking was that this would balance his risk & he could initially start transferring over the monies from his Santander HTB ISA because after 4 years the bonus in the LISA’s would be more beneficial

You can have multiple LISAs and contribute to them over time, taking it in turns if you like, just not put money into two of them in any one year.

As investments don't have guaranteed returns and statistically do better the longer you hold them, if you are going to have a mixture of cash & S&S over time it probably makes sense to do S&S the first year and get the money 'working' sooner rather than later.

Having some in cash rather than all in S&S would indeed reduce the risk compared to doing it all in S&S; but doing anything at all in S&S is perhaps an unnecessary risk if the purchase might only be five years away, because it's a shorter length of time than the typical 'boom and bust' of an economic cycle where markets go up and down. Still, if he's only just embarking on a training contract there's nothing to say he'll definitely be wanting to settle down in five years. And he probably has time on his hands with a job with increasing salary over time etc.

Given the inflexibility of the HTB ISA it does make sense to gradually start building up a LISA instead because within the next year and a half  (now, next April, April after) he can get £12000 in there and qualify for the same bonus he'd get on the HTB, and keep going for years after that.

He'll likely find the HTB ISA does pay more interest than the ex-NS&I savings cash in a normal savings account, so perhaps in the short term raid the NS&I money to stuff the first couple of years worth of LISA allowances, instead of emptying his HTB to do the same.

ljayljay

Thanks for your reply, much of which confirmed my thoughts.

Like you say starting with the S&S LISA would seem most sensible to allow a greater time period for any ups & downs & initially use the NS&I money for this purpose.

Does anyone know if there are any constraints to my other query? i.e. Is it possible to cash in more than one LISA at the same time towards a house purchase or do the rules only allow one of the LISA’s to be used?

I've done a quick search & am unable to find a clear answer as to whether this is allowed. I don't see any reason why not but would be good to know for certain.

bowlhead99

It's fine to take money out of a LISA without penalty if you're using it for a qualifying purpose (e.g. buying a qualifying property). So presumably if you have multiple LISAs you can take money out of all of them and none of them will be breaking the rules if all the money is going to that qualifying purpose. All the LISA money and bonuses will have been obtained by complying with the standard annual limits, so there's no need for HMRC to deny you just because you happened to split your allowances over multiple LISA providers over time. 

What's not allowed is to claim the bonus on a HTB ISA towards a property purchase if you're already using your LISA money towards the same purchase- because if that were possible you would be able to get yourself more bonus (by making more annual contributions) than either of the schemes would separately allow.

So, I wouldn't worry about having money in multiple LISAs as you approach a property purchase.  But if you're worried, I'm sure there will be at least one provider accepting transfers in, so you could just move your multiple LISAs into that one LISA, before doing the withdrawal.

ljayljay

That's reassuring & makes sense, thanks for your help. Now just need to check out the S&S platforms. My leaning was towards AJ Bell but am aware there are a number of others so will get him to investigate further.