36... LISA the way forward for first home?

Determined89

Hi, 

I have been battling debt for many years. I finally got the majority of my cards paid off, and I'm now looking to move forward with buying my first home. I recently got married, and there is a small amount of residual debt from the wedding expenses, which I am paying off. Alongside paying this off, I also want to start the savings process for our first home. I have been reading a lot about LISAS, and want to get some advice on the best route to take to save for a house. 

I have read a lot about LISA's. I am in a fortunate position to be able to save £4k over 12 months, so I figured this was a good place to start. I am 36, never owned my own home and on a decent wage (as of early next year, I will be on £50k a year, with a projected wage increase to £52k not long after). I have no children and am recently married. I am contributing to an NHS pension. We live in Scotland currently, however no set destination for our first home, but it will definitely be outside of London.  

Does a LISA seem a viable option for me? I am happy to be guided as to which is the best way to save. I am good at putting money aside, but if it is accessible, I am terrible at pulling it back into my main account. Something whereby the money becomes untouched is best for me. 

If a LISA is a good option, where am I best looking? Hargreaves and Lansdown, and Moneybox seem to come up frequently on searches that I have completed. 

Thanks in advance for any advice. 

El_Torro

I don't see much reason not to use a LISA, unless the property you are buying will be worth £450k or more. 

I assume you've never owned a property. Even inheriting a property and then selling it will disqualify you from being a first time buyer.

When do you plan to buy a property? If it's within the next 5 years I would go with a Cash LISA. If it's going to be longer than that you might want to look at a Stocks & Shares LISA. 

Determined89

El_Torro said:

I don't see much reason not to use a LISA, unless the property you are buying will be worth £450k or more. 

I assume you've never owned a property. Even inheriting a property and then selling it will disqualify you from being a first time buyer.

When do you plan to buy a property? If it's within the next 5 years I would go with a Cash LISA. If it's going to be longer than that you might want to look at a Stocks & Shares LISA. 

Thank you, El_Torro. 

I very much doubt that I will be getting a property above £450k, unless I were to win the lottery! 

Never owned a property; I have only ever rented or lived at home. I don't think I will be in a position to inherit, either. Both of my parents have split, but will equally have very little to hand down - property included. 

I plan to purchase a home (hopefully) within 5 years. I don't see why I wouldn't be able to, especially with the £5k potential LISA savings each year. If I were to open a Cash LISA initially, but need to switch, would that be a problem? 

Alexland

Remember to factor in property price inflation when considering if the property you are likely to buy will be at the time of purchase will be within the £450k price limit.

Could your spouse also contribute into their own LISA perhaps? Maybe share some money to ensure you both reach the contribution limits?

You won't want to ever 'pull it back' to your main account as your £4+1k would have a 25% penalty and be reduced to £3,750 so less than you contributed. Eventually it's your solicitor that would make the penalty free withdrawal for a qualifying property purchase.

LISA annual contribution limits work by tax year starting 6th April each year so you have around 5.5 months to make your first year's contribution(s). You might want to cut it fine to get the full first year's bonus but after that maybe establish some emergency money in another account. It looks like you are on a good wage so it should be possible to build both emergency pot and fill LISA next tax year but I don't know your outgoings.

Ch1ll1Phlakes

Everything discussed so far seems good. I just to check that you have an emergency fund first before you fill a LISA. Hopefully you won't need to dip into one but I imagine after clearing your debts you don't want to start building them up again so an emergency funs might be useful if you don't have one to cover them one off expenses of, for example, a new washing machine, car repairs etc.

Also well done for working through your debts. That's as big a milestone as buying your first house. Sorry a house purchase and therefore a mortgage is gonna undo your hard work.

On the LISA idea, as you like leaving your savings untouched it probably will work well for you as the fear of losing money to the withdrawal penalty will hold you back from withdrawing. Five years from now  (i.e. 6 tax-years) with full contributions would leave you with £24k in LISA contributions + £6k LISA bonus + interest say £2000 or in total approx £32000. If your spouse was able to do the same you could have a total of £64k for a deposit in five years. Looking at a 20% deposit for a mortgage you could be looking at houses worth around £320k.

Seems quite nice doesn't it. As your looking at only five years in the future, S&S LISAs (like HL) would probably carry too much risk of losing money on your investment and I suggest you stick to Cash LISAs (like Moneybox). You may lose a bit to inflation but you don't run the same risk of ending with less than you started.

You have discussed this above, and you mention switching but that shouldn't be a problem LISAs like all ISAs can be transferred between providers relatively easily, though the experience and speed may vary. I've held a LISA with Skipton and transferred it to Moneybox no problem. And a switch between a Cash LISA and a S&S LISA should also be fine.

I'll provide the link to the MSE page for LISAs incase you want to read over any of the rules and to comapre the best Cash LISAs on offer (by interest rate). Lifetime ISA (LISA): how they work & best buys. I use Moneybox myself and works quite well with monthly depositss as an option.

Determined89

Alexland said:

Remember to factor in property price inflation when considering if the property you are likely to buy will be at the time of purchase will be within the £450k price limit.

Could your spouse also contribute into their own LISA perhaps? Maybe share some money to ensure you both reach the contribution limits?

You won't want to ever 'pull it back' to your main account as your £4+1k would have a 25% penalty and be reduced to £3,750 so less than you contributed. Eventually it's your solicitor that would make the penalty free withdrawal for a qualifying property purchase.

LISA annual contribution limits work by tax year starting 6th April each year so you have around 5.5 months to make your first year's contribution(s). You might want to cut it fine to get the full first year's bonus but after that maybe establish some emergency money in another account. It looks like you are on a good wage so it should be possible to build both emergency pot and fill LISA next tax year but I don't know your outgoings.

Hi Alexland, 

Thank you for your reply.

I doubt that we would ever be in a position to afford anything more than £450k, as we would like to have a disposable income. Of course, things change over time, which may make a difference later down the road. We would be looking at something affordable for both housing and quality of life. 

I have spoken with him, we have agreed that we will both do that, but he wants to get some savings built up first for in case anything goes wrong with the house/car, etc, as mentioned elsewhere. We are both going to work towards clearing any residual debts from the wedding and then work on an emergency savings account after that. 

Yes, apologies, I am aware that you would lose value by withdrawing the cash wihtout it being used as intended (a house). I meant that when I have a savings account that I can access, I am a prolific spender, whereby I withdraw savings to pay for something that I do not need, but 'really' want, as I feel I can pay it back at a later date. I can afford to live and save, I just need to stop the spending habits that I have. 

Is there any point in opening one now, with even just £1, or just wait until April? I would be in a much better position in April if I were to be completely honest with myself! 

Determined89

Ch1ll1Phlakes said:

Everything discussed so far seems good. I just to check that you have an emergency fund first before you fill a LISA. Hopefully you won't need to dip into one but I imagine after clearing your debts you don't want to start building them up again so an emergency funs might be useful if you don't have one to cover them one off expenses of, for example, a new washing machine, car repairs etc.

Also well done for working through your debts. That's as big a milestone as buying your first house. Sorry a house purchase and therefore a mortgage is gonna undo your hard work.

On the LISA idea, as you like leaving your savings untouched it probably will work well for you as the fear of losing money to the withdrawal penalty will hold you back from withdrawing. Five years from now  (i.e. 6 tax-years) with full contributions would leave you with £24k in LISA contributions + £6k LISA bonus + interest say £2000 or in total approx £32000. If your spouse was able to do the same you could have a total of £64k for a deposit in five years. Looking at a 20% deposit for a mortgage you could be looking at houses worth around £320k.

Seems quite nice doesn't it. As your looking at only five years in the future, S&S LISAs (like HL) would probably carry too much risk of losing money on your investment and I suggest you stick to Cash LISAs (like Moneybox). You may lose a bit to inflation but you don't run the same risk of ending with less than you started.

You have discussed this above, and you mention switching but that shouldn't be a problem LISAs like all ISAs can be transferred between providers relatively easily, though the experience and speed may vary. I've held a LISA with Skipton and transferred it to Moneybox no problem. And a switch between a Cash LISA and a S&S LISA should also be fine.

I'll provide the link to the MSE page for LISAs incase you want to read over any of the rules and to comapre the best Cash LISAs on offer (by interest rate). Lifetime ISA (LISA): how they work & best buys. I use Moneybox myself and works quite well with monthly depositss as an option.

Hi Ch1ll1Phlakes,

Thanks for your reply too! It all helps significantly. 

I took note of your advice regarding the emergency fund - we have some, but not enough to be realistic. I spoke with my husband about this, I think we would plan to iron out some last bits of debt post-wedding, build a fund of emergency savings and then work on the LISA from there. 

Thank you, it was a mean feat, but significant overpaying helped out. I am very happy with the over-pay method, it works well for me! 

That seems like such a wealthy pot to have under our belt. I would very much strive to be in a position to do just that. I don't know what the future holds, as does no one, but with things going well, within reason, I can see how this is a realistic goal/achievement for us. I figured it was about 333.33 per month would achieve that. I would be happy to do some overtime each month to meet half of that monthly figure to take the stress off my monthly wage. 

That is so helpful, thank you so much. Do you think it would be worth opening and putting £1 in now, or waiting? I don't want to waste time, but equally wish to open one at the earliest (sensible) time. 

Alexland

Determined89 said:

Is there any point in opening one now, with even just £1, or just wait until April? I would be in a much better position in April if I were to be completely honest with myself! 

If you open it early with £1 then it starts the clock on the 12 month minimum period that you need to hold the account before using it for a qualifying property purchase although it sounds like the purchase would take longer anyway. It also covers the possibility that the government close the account to new applicants while still allowing existing account holders to continue contributing to earn bonuses.

Personally for such an important thing as owning a first home and if you are sure the £450k cap won't be too limiting in future then I would do the overtime, cut all non-essential spending, roll the debt onto 0% (maybe by putting new essential spending on a 2 year 0% credit card and using current income to repay the debt), and ensure the LISAs are filled every possible tax year and then build up an emergency fund and some money to repay the card when it's due on the side. It's a bit risky but it's 25% bonus versus 6.25% early access penalty so the odds are stacked in your favour. Spreadsheet's can help track and motivate.

Do you have family who would act as your emergency fund if you explained what you are trying to achieve?

Good luck whatever you decide to do.

Ch1ll1Phlakes

Determined89 said:

Ch1ll1Phlakes said:

Everything discussed so far seems good. I just to check that you have an emergency fund first before you fill a LISA. Hopefully you won't need to dip into one but I imagine after clearing your debts you don't want to start building them up again so an emergency funs might be useful if you don't have one to cover them one off expenses of, for example, a new washing machine, car repairs etc.

Also well done for working through your debts. That's as big a milestone as buying your first house. Sorry a house purchase and therefore a mortgage is gonna undo your hard work.

On the LISA idea, as you like leaving your savings untouched it probably will work well for you as the fear of losing money to the withdrawal penalty will hold you back from withdrawing. Five years from now  (i.e. 6 tax-years) with full contributions would leave you with £24k in LISA contributions + £6k LISA bonus + interest say £2000 or in total approx £32000. If your spouse was able to do the same you could have a total of £64k for a deposit in five years. Looking at a 20% deposit for a mortgage you could be looking at houses worth around £320k.

Seems quite nice doesn't it. As your looking at only five years in the future, S&S LISAs (like HL) would probably carry too much risk of losing money on your investment and I suggest you stick to Cash LISAs (like Moneybox). You may lose a bit to inflation but you don't run the same risk of ending with less than you started.

You have discussed this above, and you mention switching but that shouldn't be a problem LISAs like all ISAs can be transferred between providers relatively easily, though the experience and speed may vary. I've held a LISA with Skipton and transferred it to Moneybox no problem. And a switch between a Cash LISA and a S&S LISA should also be fine.

I'll provide the link to the MSE page for LISAs incase you want to read over any of the rules and to comapre the best Cash LISAs on offer (by interest rate). Lifetime ISA (LISA): how they work & best buys. I use Moneybox myself and works quite well with monthly depositss as an option.

Hi Ch1ll1Phlakes,

Thanks for your reply too! It all helps significantly. 

I took note of your advice regarding the emergency fund - we have some, but not enough to be realistic. I spoke with my husband about this, I think we would plan to iron out some last bits of debt post-wedding, build a fund of emergency savings and then work on the LISA from there. 

Thank you, it was a mean feat, but significant overpaying helped out. I am very happy with the over-pay method, it works well for me! 

That seems like such a wealthy pot to have under our belt. I would very much strive to be in a position to do just that. I don't know what the future holds, as does no one, but with things going well, within reason, I can see how this is a realistic goal/achievement for us. I figured it was about 333.33 per month would achieve that. I would be happy to do some overtime each month to meet half of that monthly figure to take the stress off my monthly wage. 

That is so helpful, thank you so much. Do you think it would be worth opening and putting £1 in now, or waiting? I don't want to waste time, but equally wish to open one at the earliest (sensible) time. 

Happy to help.

Glad you and your husband are on the same page as that will make spending and savings easier for you both. And yes cleaning your remaining debts and building a fund before a LISA is a sensible idea. Doing so will protect you a little more from the LISA withdrawal penalty as you'll have other funds you can access first.

A LISA (or two) will definitely give you a good pot to start your house buying journey. As a financial astute friend said "It's a free £1000 a year" (if maxed out) which is great. Yes £333.33 per month would achieve the total (minus 4p at the end of the year which should be easier enough to add) and the overtime would work but don't over do yourself for five year just to meet that goal. Even £250 per month would give you £3000 per year then £24k in five years (based on my previous post) and a combined £48k with your spouse.

Remember some months will be easier than other to save, for example, trying to save the same amount at Christmas will be much harder I imagine than say spring. Any and every contribution will help in the long run even a £25 here or there.

The open and put in £1 idea was (as far as I know) a Martin Lewis idea because, as @Alexland said, it gets the ball rolling on the minimum 12 month opening before the LISA can be used for a house purchase. As you plan to buy a house in the next five years, it will do no harm to open a LISA now even if your only adding the pound and forgetting about it for a while. It's definitely not a waste of time.