Should I transfer my HSBC Help to Buy ISA to a LISA

Okinaw

Hi all,

I got a message recently that the interest rate for the HSBC HTB ISA is to be reduced (1.75% to 0.75%).

I currently have around £5,300 invested and put in the max £200 per month.

Given the reduction in interest rates I was wondering if it may be worth switching to a LISA (Moneybox seems the best currently).

I currently save an additional £300ish a month outside of my ISA which is intended for my deposit and I know the LISA allows more in per month.

Given I've already put into my HTB ISA this year do I have to wait for next year to transfer? I've read you can only transfer in the max 4000, meaning I'll have some left over, which I assume I can just leave in the HSBC ISA?

I also know you have to wait 12 months to use the LISA towards a deposit - this I am in two minds about- I have around £30k (excluding the HTB ISA) saved. Given how crazy the housing market is currently and prices only seem to be going up should I just buy now? Or should I wait it out for another year and hope things settle or even crash?

Any advice appreciated!

masonic

Statistically you are likely to end up worse off by delaying a house purchase if you ready to proceed. House prices are not likely to continue rising at the rate they have done post-lockdown, but a crash within the next year or two is also an unlikely scenario. Even a modest rise in house prices could wipe out any returns you could get on, say 10-20% of the value of the property you have saved up.

If you want to use a LISA rather than a HTB ISA, then it would be best to open one with the minimum deposit (which you can do now assuming you haven't used up your £20k annual ISA allowance), then top up to the annual £4k limit when you are sure you won't buy within the first year of holding the LISA. There is no need to remove any money from the HTB ISA if the £30k of other savings is earning less than 0.75%. You can cash in the HTB ISA when you buy without collecting the bonus (which you'll get from the LISA). If you are able to commit to the LISA before the end of this tax year, you could have a balance of £10k in there by late June 2022, including the bonus from both tax years, but you would not be able to use it (penalty free) until mid-September 2022.

You would therefore wait a year, get an extra <£1k Government bonus, earn <£500 interest, and if house prices went up 1% you'd be paying an extra £2k on a £200k property. That wouldn't be moneysaving.