Lifetime ISA - Stocks & Shares & Help & Thoughts

harrinho

Hi everyone. I'm new in investments but have researched a lot about the investment options in the UK. To give you a bit of my background, we are a 36 yo EU couple, moved and working in the UK for the last 6 years. Although better late than ever, we are now in a position to save some solid money in to ISAs and I'm trying to figure out what the best option for us would be.

Thought #1 is to go for the obvious LISA. That would be quite convenient for us as we could easily plan to save let's say 40-50K in the next 4-5 years for a home deposit. Having studied the MSE Mortgage guide and gone through the MSE mortgage tool though, I was quite disappointed with this prospect in our current status, cause even if we manage to put down a 20% deposit, we would still should go for a maximum 450K home which in the best scenario it would be around London Zone 3 if not further away, and which would commit us to a £1,800 for a 22+ years. Which brings me to my concern about LISA. Let's say we get to the point we buy the house, and then we decide to move back. From my experience, I don't see how a 450k house in an area, who knows, could be rented at the mortgage required levels. So, I'm wondering, is a LISA worth opening it? Even if we don't manage to buy a house, given that you can't pay in to your LISA if you leave abroad, would it be worth keeping the savings for 25years till our 60s to get them out? Thinking out loud..

Thought #2 Given I am a higher taxrate payer, I am auto-enrolled in my employer's pension pot. My Pension contribution is a very good 9% (3% mine, 6% employer's) and I have done the maths through MSE guide. In the long term, my Pension would give me back quite more than a LISA, especially since I plan to take my Pension contribution to 15%. However, my question here is, would it make sense opening a LISA when my Pension pot beats the LISA scenario? Or it's just a case of it doesn't hurt to have both? 

Thought #3 Apart from the LISA, I'm looking to open a Stocks & Shares ISA to go away from the 0.01% regular savings I currently am after the 1-year offer I had after switching to my current bank. I have obviously gone through the MSE S&S ISA article but still unsure with which platform I should go with. Having gone through nutmeg's assessment and estimations, it was forecasting a ridiculous growth in a 5 year timeframe. So the fully managed portfolio they offer didn't seem appealing.

Would much appreciate any thoughts you could share. Many thanks

Alexland

#1 agree with your circumstances a LISA might not be suitable if you might not be staying in the UK or if the £450k price cap is likely to be too limiting. Try and firm up your thoughts on these aspects.
#2 certainly wouldn't consider a total 9% contribution 'very good' but it depends on when you hope to retire and what level of income you will require. Even when I was a basic rate taxpayer my total monthly contribution was never less than 16% and now contribute a lot more to avoid paying any higher rate tax. It's better to avoid higher rate tax from additional pension contributions before paying into a LISA for retirement.
#3 unsure what was ridiculous about Nutmeg's projections but haven't seen any evidence it is worth paying more for their managed portfolios and their cheaper fixed allocation portfolios are still expensive compared to similar asset allocations on Vanguard Investor. Investing is for 5-7 years minimum so not usually suitable for house deposits but depends on your timelines.

md258

#1: I don't believe that the LISA for a house purchase is particularly attractive in and around London. If they changed the penalty for a property over £450k to 20%, or linked it with house price inflation, that would be better but with the way it is at the moment, there's too much risk of losing money as the house you want is too expensive.

#2: due to the differences in how a LISA and pension are taxed, there probably are cases for a basic rate taxpayer where the LISA is better, but I don't believe that is the case for a higher rate one. I'd put the money into your pension if I were saving for retirement.

#3: there's no reason why you would have to have your savings with your current bank- you can open savings accounts with one of the top interest paying providers.

#3 (2): have you worked out which funds you want to invest in? If so, it should be easy to work out which provider to go with. If you're struggling with the first point, have a look at Vanguard Life Strategy/Blackrock Consensus or the HSBC/L&G versions. They are all available with different levels of risk. As you're on this forum, I'm guessing that you have a level of interest in finances and so wouldn't need a Nutmeg style robo-investor to do some of the work for you.

harrinho

md258 said:

#1: I don't believe that the LISA for a house purchase is particularly attractive in and around London. If they changed the penalty for a property over £450k to 20%, or linked it with house price inflation, that would be better but with the way it is at the moment, there's too much risk of losing money as the house you want is too expensive.

Thank you very much for your inputs. Are you saying that you can still use LISA for a home purchase >450K but it is then subject to penalty? If yes, what's the penalty, do you know? I was under the impression that the LISA for a home buy is strictly tied to a maximum home value of 450K. 

md258 said:

#3 (2): have you worked out which funds you want to invest in? If so, it should be easy to work out which provider to go with. If you're struggling with the first point, have a look at Vanguard Life Strategy/Blackrock Consensus or the HSBC/L&G versions. They are all available with different levels of risk. As you're on this forum, I'm guessing that you have a level of interest in finances and so wouldn't need a Nutmeg style robo-investor to do some of the work for you.

As a beginning I'd be keen Vanguard S&P 500, but in terms of the anguard Life Strategy/Blackrock Consensus you mentioned, I haven't gone in detail to see what they include yet. The only reason I would consider Nutmeg robo-investor style platforms would be the friendly UI which in some way makes me feel I put an auto-secure investment. Although, of course, I know that this is not the case as there are no guarantees on that. 

eskbanker

harrinho said:

md258 said:

#1: I don't believe that the LISA for a house purchase is particularly attractive in and around London. If they changed the penalty for a property over £450k to 20%, or linked it with house price inflation, that would be better but with the way it is at the moment, there's too much risk of losing money as the house you want is too expensive.

Thank you very much for your inputs. Are you saying that you can still use LISA for a home purchase >450K but it is then subject to penalty? If yes, what's the penalty, do you know? I was under the impression that the LISA for a home buy is strictly tied to a maximum home value of 450K.

Funds can be withdrawn from a LISA at any time and for any purpose, subject to a withdrawal penalty of 25% (currently reduced to 20% for this tax year) if not buying a qualifying property (or if over 60).

harrinho

Oh yeah, I am aware of that. I thought @md258 meant something else, but yes I get your point. Thanks!