Help to buy ISA - time to ditch ?

Sparkymark70

My son (28) has a help to buy ISA - given the house purchase price limit for down south is way too low now should he move to a LISA or is there a better option ?

eskbanker

If he's looking to buy outside London and £250K isn't enough, then the £450K LISA limit is obviously more attractive, but it does have some downsides, and in particular the withdrawal penalty for money taken out before 60 other than for a first time property purchase, plus the requirement to hold the account for a year before (penalty-free) access.

Assuming he's happy to accept such limitations, then transferring from HTB ISA to LISA is likely to be worthwhile, albeit this can only be done at £4K/year.

Bridlington1

It firstly depends on whether he definitely wishes to buy a property or not. If he is unsure whether he will buy or not, then it is probably best not to put too much in a LISA due to the withdrawal penalties involved if not used for a property purchase or retirement. In this instance I would open a LISA with £1 for now, then if he does decide to buy somewhere for less than £450k, he can just transfer £4k into the LISA to get the bonus on that.

If he definitely will be buying his first property in more than a year then it depends on the value of the property your son wishes to buy. If the property he is looking to buy will cost more than £450k then a LISA won't be much use and will leave him with a 6.25% loss on any contributions should he wish to withdraw any money so look for alternatives to the H2B ISA and the LISA.

If the property will cost between £250k and £450k and is outside of London, then a LISA is the best option. I would open it with £1 now, then transfer another £3999 just before the end of the tax year as he can only get the 25% bonus on contributions and the interest rate on the LISA can be easily beaten elsewhere.

If the property he wishes to buy is within London then it's a little less clear cut. The £450k limit applies to both the H2B ISA and the LISA for properties in London. Provided the property he wishes to purchase will be within this limit, it will depend on how much he has in the H2B ISA at the moment, when he will buy and how much he is likely to save as to whether the H2B ISA or the LISA will be the best option. 
-If he is likely to save less than £200/mth and is not likely to save £12k or more before buying his first property, stick with the H2B ISA as there are fewer penalties involved.
-If he is likely to save £12k+ in the H2B ISA by April 2024, opt for the LISA for the bigger bonus