Buying a flat with a lifetime ISA

penmark

Hi, I've searched and can't find a definitive answer for this so wondering if anyone can help. Our daughter has just had an offer accepted for her first property, a flat. She has £20,000 available in her lifetime ISA, but only around £1500 in other savings. She is buying the flat at a reduced price of £85,000, but the flat needs a fair bit of work doing before she can move in. We're aware that all of the money in the LISA needs to be used for the house purchase, but she only needs around £5,000 to meet the minimum deposit for the mortgage.

So my question is - what exactly counts as all the money being used for the house purchase? I see a couple of options - 
 - could she put £5,000 down as the deposit, but ask the solicitor to empty the account towards the house purchase, then use the balance to do the initial work on the property (will need plastering/ceiling work/kitchen etc).
 - could she put all the money in as the deposit (£20,000), but then ask for a mortgage of £80,000 - would it be ok to then use the balance to do the initial work.

Either way, she would be borrowing £80,000 against the purchase price of £85,000 - but would have around £15,000 available for the work needed. Of course the other option would be to withdraw some of the funds to do the work, but this would mean losing 25% of whatever sum she takes out, which would be a big hit.

Hope that makes sense, we just can't find a definitive answer to this dilemma. Any thought would be much appreciated.

Gavin83

You have to use the LISA towards the cost of the flat, unless you’re willing to suffer the penalty. You’ll never actually see the money, it’ll just go to your solicitor and they’ll pass it onto the vendors solicitor.

How she generates the rest is up to her. If you borrow more on the mortgage it’ll push up the interest rate she pays so it might be cheaper to get a separate loan or credit card.

Don’t forget the other costs too, such as the solicitor, surveys, etc. That’ll easily swallow up the £1500 on it’s own.

penmark

Hi, thanks for your reply. That's the point really, about only having £1500 available cash which will get used up by fees. What I'm wondering, is what actually constitutes 'the cost of the flat'...does this have to be purely the deposit for the purchase price, or can it be used for necessary work before moving in - I can't actually find a definition anywhere!

BeerSavesMoney

I’ve found the Moneybox site has quite useful LISA documentation 

Your LISA balance also cannot be used for solicitor’s fees or the costs of furnishing your property.

https://www.moneyboxapp.com/faqs/what-cant-lifetime-isa-funds-be-used-for/

LISA funds cannot be used towards other expenses such as stamp duty, solicitors fees, mortgage payments, home furnishings etc. Any unused funds must be returned to the LISA, and should not be transferred directly to the customer under any circumstances.

https://www.moneyboxapp.com/faqs/what-can-lifetime-isa-funds-be-used-for/

It seems you can ask your solicitor to make a partial withdrawal from the LISA towards the deposit however any other funds withdrawn will incur the withdrawal penalty.

penmark

Thanks for your comments. I had read these explanations, but it still doesn't really address things like essential work that needs carrying out before moving in, and may even be a condition of the mortgage. I've brought this up with financial advisers and getting conflicting opinions, so was just wondering if anyone on here had been in similar situations. I guess we'll just need to address it with our solicitors when the time comes...thanks.

Gavin83

Both BeerSavesMoney and myself have answered this already. You can’t use a LISA for anything other than directly buying the flat. You can’t use it for renovation work, any furnishings, fees, etc. At least without suffering the penalty.

You may possibly be able to follow your idea of borrowing more on the mortgage but that comes with it’s own pitfalls. Credit cards might well work out cheaper.