Should I open a LISA if hoping to buy soon?

RoisinDove

Hello everyone,
I recently made a thread about whether I should buy a flat and got lots of helpful advice. One person mentioned LISAs to me. I hadn't really looked into them before because I didn't think I'd be able to start saving for a deposit as soon as I did (the pandemic allowed me to hugely increase savings due to lack of other spending and more time for freelance work). From what I understand, you can put in a maximum of 4K per tax year and the government tops it up by 25%? So if I put in £4K tomorrow and £4K in late April, I could then have £10K in the account, but the rules also say you need to have opened the account 12 months before buying, meaning I would get no benefit from the LISA if I bought before next March. Is this correct or have I misunderstood?

eskbanker

It's correct, you've understood the main positives and negatives of LISAs, with the possible exception of the fact that (assuming the withdrawal penalty returns to 25% instead of its temporary 20% level) you'd only get £7.5K back (plus interest) from your original £8K if withdrawing early.

grumiofoundation

If you think there is a risk you might buy before the 12 month deadline is up you could open today with £1 (to get the clock ticking) and then if it becomes clear you won't be completing before 12 months is up you can put £4000 into the account (and another £4000 post April 6th 2022)

RoisinDove

grumiofoundation said:

If you think there is a risk you might buy before the 12 month deadline is up you could open today with £1 (to get the clock ticking) and then if it becomes clear you won't be completing before 12 months is up you can put £4000 into the account (and another £4000 post April 6th 2022)

Oh that is an excellent suggestion! So having it here if I need it later, but not having to worry about withdrawing money. It will mean not being able to put in the 4K this tax year, but I think the risk of needing to withdraw it early is too big.

BuildTheWall

Note that it can take up to a month to get the bonus from government and another month if you plan to use it for house purchase. So plan accordingly and set the expectations for the seller. 

Alexland

BuildTheWall said:

Note that it can take up to a month to get the bonus from government and another month if you plan to use it for house purchase. So plan accordingly and set the expectations for the seller. 

A month is almost the best case for a bonus to be added.

Each month the LISA provider identifies contributions made between the 6th of the previous month and the 5th of the current month and submits a claim into the government in a process that takes around 3-4 weeks before the money has been received and distributed into customer accounts. Some providers are a bit faster at this than others. Sometimes the claim fails (more likely after a recent transfer) and needs resubmitting in the following month's batch.

Still the bonus doesn't have to be used towards the property purchase it can remain within the LISA wrapper and be used as a start towards investing for age 60+