S&S LISA vs Cash LISA - Buying in 1-2 years

Savingforahouse123

Hi, looking for help. I plan to buy my first house in the next year or two. I currently have a Stocks & Shares Lifetime ISA which I’ve had for many years. I contribute the maximum of £4K each tax year and get a 25% Government bonus each tax year from it which is £1k per tax year. Generally people say stocks should be a long term investment (5+ years) so if I add £4K in this tax year the stocks might not perform well in the short term. Since I’m getting close to buying, I’m not sure a S&S LISA is the right option - instead a Cash LISA could be better since there’s less risk.

If I get a Cash LISA it means I’ll get a measly around 1% interest but at least the money won’t go down, which it could do in a S&S LISA (unless of course you factor in 7% inflation then I’d be losing money in the Cash LISA).

Which option do you think I should go for? Either way I’ll be moving £4K this tax year into one of those accounts.

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Bonus question: My parents said they'd very kindly help me towards my house purchase but they won't disclose how much. I had a random idea.... I have saved £20k in my LISA (soon to be £25k when I pay in the next £4k & get the Govt bonus). I thought to myself.... if I use the LISA towards a house deposit, then it would be used forever and I won't be able to use it for retirement. However, if perhaps my parents would be extremely kind (big if) to contribute what I have in my LISA, then I can continue to use my LISA every single year until retirement. Assuming I manage to save away £4k each tax year, that means I'll be getting £1k each tax year for the rest of my life. I realise the risk that if a crisis comes into my life let's say in 20 years, I can't then take money out of this LISA so there's an element of risk attached. Do you think using a LISA for retirement is far better than using it for a first time house purchase?

eskbanker

Use a cash LISA rather than S&S if buying within the next year or two.  Yes, it'll probably lose out in real terms value to inflation but the only way to avoid that is to run the risk of capital loss from investment, or consider bringing forward your purchase.

Savingforahouse123 said:

I thought to myself.... if I use the LISA towards a house deposit, then it would be used forever and I won't be able to use it for retirement.

No, using a LISA for your first property purchase doesn't prevent you from opening a new one for retirement, or continuing with your existing one if you don't fully empty and close it.

Savingforahouse123 said:

I can continue to use my LISA every single year until retirement. Assuming I manage to save away £4k each tax year, that means I'll be getting £1k each tax year for the rest of my life.

....until you're 50!

Albermarle

Do you think using a LISA for retirement is far better than using it for a first time house purchase?

The answer will depend to some extent on what other provisions you will be making for retirement, such as a pension .

In any case £5K pa for say 25 years, will not in itself provide for a decent retirement ( although better than nothing of course )

P1Fanatic

As the other replies have suggested a S&S LISA is too much of a risk for such an imminent and large purchase. You mention you cant take money out for a crisis, you can withdraw but will lose the bonus of course which does make it more of a last resort (which is what I presume you were alluding to).

For retirement, I see the LISA more for plugging the gap between aged 60 (when you can withdraw funds penalty free) and state pension age 67/68/whatever it will be for you i.e. if you want to retire earlier and in addition to a pension.

george4064

Investments are ideally for 10 years +, but as a minimum 5 years. So I’m your scenario, it would be wise to avoid investing and keep it in cash (LISA).