Nutmeg LISA

Alexland

SavingStudent1 said:
If I want to invest a total of £20,000 over 5 years,

- In Year 1, invest £2,500 each quarter or £833.33 a month, either one
- In Years 2, 3, 4 and 5, invest £208.33 a month (£2,500 a year).

In this way, at least we invested a large amount at the start, so by the end of the 5 years, the gains made on the investment at the start of the period will be significant?

I don't think it overcome the issue as you would still have more money in the market at the end of the period than the start but having a higher proportion invested for the whole, or most of the period, would help with the averaging out of returns. But still 5 years is a very short period to be investing let alone drip feeding or at current elevated valuations. Ultimately the problem is that there isn't a good answer for someone regularly saving or investing over the next 5 years as cash will lose to inflation and short term investment is a gamble.

SavingStudent1

Alexland said:

SavingStudent1 said:
If I want to invest a total of £20,000 over 5 years,

- In Year 1, invest £2,500 each quarter or £833.33 a month, either one
- In Years 2, 3, 4 and 5, invest £208.33 a month (£2,500 a year).

In this way, at least we invested a large amount at the start, so by the end of the 5 years, the gains made on the investment at the start of the period will be significant?

I don't think it overcome the issue as you would still have more money in the market at the end of the period than the start but having a higher proportion invested for the whole, or most of the period, would help with the averaging out of returns. But still 5 years is a very short period to be investing let alone drip feeding or at current elevated valuations. Ultimately the problem is that there isn't a good answer for someone regularly saving or investing over the next 5 years as cash will lose to inflation and short term investment is a gamble.

Thank you, so if I want to open up a S&S LISA, do you think it is more reasonable to keep it for 10 years before using it to buy a house? Ideally, I would want to make the purchase at latest, 10 years from now - hence why I put that timeframe.

Alexland

SavingStudent1 said

Thank you, so if I want to open up a S&S LISA, do you think it is more reasonable to keep it for 10 years before using it to buy a house? Ideally, I would want to make the purchase at latest, 10 years from now - hence why I put that timeframe.

10 years is a much more reasonable time to invest for and if you get good returns you can switch back to a cash LISA (assuming providers are still offering them...) after 5 years and if your investments are in trouble you could give them a few more years to recover. However are you sure the £450k property price cap won't be an issue in 10 years time? House prices tend to go up and people's circumstances change such as wanting to buy somewhere bigger, a nicer area, getting inheritance, or perhaps combining spending power with a partner, etc.

SavingStudent1

Alexland said:

SavingStudent1 said

Thank you, so if I want to open up a S&S LISA, do you think it is more reasonable to keep it for 10 years before using it to buy a house? Ideally, I would want to make the purchase at latest, 10 years from now - hence why I put that timeframe.

10 years is a much more reasonable time to invest for and if you get good returns you can switch back to a cash LISA (assuming providers are still offering them...) after 5 years and if your investments are in trouble you could give them a few more years to recover. However are you sure the £450k property price cap won't be an issue in 10 years time? House prices tend to go up and people's circumstances change such as wanting to buy somewhere bigger, a nicer area, getting inheritance, or perhaps combining spending power with a partner, etc.

Yeah, I'm just confused as to this LISA thing. Because, I want to sort of use it to buy a 'first house' because of the £450k cap. I suppose, in the future, I would like to buy another house which may be more expensive, but I'd take out a huge mortgage on that - I don't think I'll be able to fund it otherwise.

With the £450k cap, I am thinking if I leave it over 10 years, I would need a smaller mortgage (with the support of a partner) - £50k contributions in the LISA and hopefully it'll be worth £55k - £60k due to good returns, and then I'd probably have £50k total cash in the bank or other investments over 10 years. I assume me and my partner would have £200k upwards in that timeframe.

To be honest, I actually want to get a first home which is big, nice and all - but then I won't be able to use the LISA because it is has the cap. I always thought about this - as in, could I just used the S&S LISA as my investment vehicle... and just use it to save for 'retirement' instead of 'house purchase'. I guess it sounds reasonable to be honest, provided I put a lot of my other investment money into pensions, then I won't have much money left for investment which would make me think I want to open a separate S&S ISA to put e.g. £1000 a year,.

Alexland

I wouldn't allow the LISA price cap to determine which property you are buying as that's the tail wagging the dog. Before LISAs there were HTB ISAs which had a property price limit of £250k outside London and we regularly see posts from people who thought that was reasonable when they opened the account but now with house price growth find they cannot use the product. We are even seeing posts already from people with LISAs finding £450k too restrictive and annoyed they will have to pay the withdrawal penalty.
The amount you need to borrow on a mortgage is a fine balance between getting the property you want and having enough confidence in your ongoing ability to pay it with consideration to adverse circumstances such as interest rate increases and needing to stay employed at a certain income level especially if also pursuing other objectives such as having kids, etc.

SavingStudent1

Alexland said:

I wouldn't allow the LISA price cap to determine which property you are buying as that's the tail wagging the dog. Before LISAs there were HTB ISAs which had a property price limit of £250k outside London and we regularly see posts from people who thought that was reasonable when they opened the account but now with house price growth find they cannot use the product. We are even seeing posts already from people with LISAs finding £450k too restrictive and annoyed they will have to pay the withdrawal penalty.
The amount you need to borrow on a mortgage is a fine balance between getting the property you want and having enough confidence in your ongoing ability to pay it with consideration to adverse circumstances such as interest rate increases and needing to stay employed at a certain income level especially if also pursuing other objectives such as having kids, etc.

Ah, I see what you're saying now - it is more of a problem that house prices are always increasing now, and due to that, it will be difficult to buy a house at such a low price in terms of the type of houses people want are usually at much higher prices.

So, would it be reasonable to just use the LISA to:

1. Buy a simple house that you want to live in temporarily till you get 'the one you want to live in permanently' and this could be say £400k. But, the only problem is that to buy a decent style house, I would have to get it soon else due to house prices, that decent house could be £500k in 10 years instead of £400k. But then, it sort of shuts down the idea of a S&S LISA if I am planning to get that within say the next 5 years, at most.

2. Use it as a S&S LISA and just use it to save for retirement income, considering you get £1k free from the government each year, it seems like a good investment vehicle - I don't know what are the drawbacks of this compared to other vehicles e.g. S&S ISA, other than the investment cap of £4000 a year and can't withdraw before 55 - I feel if you want to invest more, you can always open a separate S&S ISA. But, I guess the 'can't withdraw before 55' is a huge drawback as other investments you have access to anytime if you want to cash out.

grumiofoundation

SavingStudent1 said:

Alexland said:

I wouldn't allow the LISA price cap to determine which property you are buying as that's the tail wagging the dog. Before LISAs there were HTB ISAs which had a property price limit of £250k outside London and we regularly see posts from people who thought that was reasonable when they opened the account but now with house price growth find they cannot use the product. We are even seeing posts already from people with LISAs finding £450k too restrictive and annoyed they will have to pay the withdrawal penalty.
The amount you need to borrow on a mortgage is a fine balance between getting the property you want and having enough confidence in your ongoing ability to pay it with consideration to adverse circumstances such as interest rate increases and needing to stay employed at a certain income level especially if also pursuing other objectives such as having kids, etc.

Ah, I see what you're saying now - it is more of a problem that house prices are always increasing now, and due to that, it will be difficult to buy a house at such a low price in terms of the type of houses people want are usually at much higher prices.

So, would it be reasonable to just use the LISA to:

1. Buy a simple house that you want to live in temporarily till you get 'the one you want to live in permanently' and this could be say £400k. But, the only problem is that to buy a decent style house, I would have to get it soon else due to house prices, that decent house could be £500k in 10 years instead of £400k. But then, it sort of shuts down the idea of a S&S LISA if I am planning to get that within say the next 5 years, at most.

2. Use it as a S&S LISA and just use it to save for retirement income, considering you get £1k free from the government each year, it seems like a good investment vehicle - I don't know what are the drawbacks of this compared to other vehicles e.g. S&S ISA, other than the investment cap of £4000 a year and can't withdraw before 55 - I feel if you want to invest more, you can always open a separate S&S ISA. But, I guess the 'can't withdraw before 55' is a huge drawback as other investments you have access to anytime if you want to cash out.

1. I agree with Alex above that don't let the LISA limit determine what you buy. The money you spend on 2 sets of buying costs, additional selling costs, stamp duty etc (plus the hassle) will probably offset the bonus. Obviously this depends a bit on what you mean by 'temporarily'.

We recently bought using a LISA but were starting to get a bit worried about the limit becoming an issue and were considering the possibility of buying somewhere cheap to 'use up' the bonus rather than withdrawing some of our deposit from LISA if the houses we wanted went >450k (and then transfer rest to S and S LISA for retirement . But once we worked out the cost of buying, selling, buying, paying 2 lots of LTT (welsh equivalent of Stamp duty) this option wasn't as attractive!

Luckily in the end we didn't need to as purchased under the limit.


2. You can't withdraw from LISA until 60 - not 55 (you are confusing with pension?). Pension being the usual efficient method to save for retirement - e.g. via a workplace pension. There are various other differences between LISA and pension - are a number of comparisons online, and some threads on this forum too. 

SavingStudent1

grumiofoundation said:

SavingStudent1 said:

Alexland said:

I wouldn't allow the LISA price cap to determine which property you are buying as that's the tail wagging the dog. Before LISAs there were HTB ISAs which had a property price limit of £250k outside London and we regularly see posts from people who thought that was reasonable when they opened the account but now with house price growth find they cannot use the product. We are even seeing posts already from people with LISAs finding £450k too restrictive and annoyed they will have to pay the withdrawal penalty.
The amount you need to borrow on a mortgage is a fine balance between getting the property you want and having enough confidence in your ongoing ability to pay it with consideration to adverse circumstances such as interest rate increases and needing to stay employed at a certain income level especially if also pursuing other objectives such as having kids, etc.

Ah, I see what you're saying now - it is more of a problem that house prices are always increasing now, and due to that, it will be difficult to buy a house at such a low price in terms of the type of houses people want are usually at much higher prices.

So, would it be reasonable to just use the LISA to:

1. Buy a simple house that you want to live in temporarily till you get 'the one you want to live in permanently' and this could be say £400k. But, the only problem is that to buy a decent style house, I would have to get it soon else due to house prices, that decent house could be £500k in 10 years instead of £400k. But then, it sort of shuts down the idea of a S&S LISA if I am planning to get that within say the next 5 years, at most.

2. Use it as a S&S LISA and just use it to save for retirement income, considering you get £1k free from the government each year, it seems like a good investment vehicle - I don't know what are the drawbacks of this compared to other vehicles e.g. S&S ISA, other than the investment cap of £4000 a year and can't withdraw before 55 - I feel if you want to invest more, you can always open a separate S&S ISA. But, I guess the 'can't withdraw before 55' is a huge drawback as other investments you have access to anytime if you want to cash out.

1. I agree with Alex above that don't let the LISA limit determine what you buy. The money you spend on 2 sets of buying costs, additional selling costs, stamp duty etc (plus the hassle) will probably offset the bonus. Obviously this depends a bit on what you mean by 'temporarily'.

We recently bought using a LISA but were starting to get a bit worried about the limit becoming an issue and were considering the possibility of buying somewhere cheap to 'use up' the bonus rather than withdrawing some of our deposit from LISA if the houses we wanted went >450k (and then transfer rest to S and S LISA for retirement . But once we worked out the cost of buying, selling, buying, paying 2 lots of LTT (welsh equivalent of Stamp duty) this option wasn't as attractive!

Luckily in the end we didn't need to as purchased under the limit.


2. You can't withdraw from LISA until 60 - not 55 (you are confusing with pension?). Pension being the usual efficient method to save for retirement - e.g. via a workplace pension. There are various other differences between LISA and pension - are a number of comparisons online, and some threads on this forum too. 

Perfect, thank you for the detailed explanation!