Should I put £4000 in my LISA or not?

Frugalgal28

Hello,

I am in my 20s, don’t have any debt aside from my student loan and have £25,000 saved in my LISA. I am going back to university in September and therefore I don’t think I will get onto the property ladder in the next few years. If I buy a house in the future I don’t think that it will be over 250,000 as I live in the north of England and I will also likely be buying with my similarly earning partner. 

I havent contributed to my LISA at all this year as I feel I may have enough in my LISA for a house deposit. I’ve kept the £4000 I’ve saved in a high interest easy-ish access savings account (can access 4x per year without penalty).

I have an emergency fund saved of 3-6 month living costs separately. 

Am I right to not put this £4000 in my LISA? I feel anxious about missing out on £1000 from the government but doubt I’d use it for a deposit in the future. And feel I may need to have some spare cash when I go back to university. 

Please let me know your thoughts!

eskbanker

Frugalgal28 said:

Am I right to not put this £4000 in my LISA? I feel anxious about missing out on £1000 from the government but doubt I’d use it for a deposit in the future. And feel I may need to have some spare cash when I go back to university. 

It's not really a matter of 'right' or 'wrong', it's just what you feel most comfortable doing!

£25K is a decent deposit but 10% is generally seen as a minimum rather than a maximum.

However, keeping your options open by not committing the money to your constrained house fund (where there are withdrawal penalties) has little downside.

Perhaps also worth bearing in mind that there will be another product to replace LISA in the future, albeit no detail about this yet....

Frugalgal28

Thanks for your quick reply! 

Just a thought that came to mind- do you think I’d better off putting a 15% deposit down as opposed to (for example) a 10% deposit and overpaying each year? 

Obviously- this depends on many factors including personal circumstances but in general? 

Thanks for your advice

eskbanker

Frugalgal28 said:

Just a thought that came to mind- do you think I’d better off putting a 15% deposit down as opposed to (for example) a 10% deposit and overpaying each year?

A lower loan-to-value ratio will sometimes give access to cheaper interest rates, but in itself stepping down from 90% to 85% is probably unlikely to achieve much on that front, although obviously repayments would be lower for the smaller balance.

As before though, it comes down to how much flexibility you wish to retain (and overpayment terms).

Angelica123

Do you have enough to cover your living costs while you are at university? If you can't comfortably do so, it would be prudent to keep the money out of the LISA to flexibly cover expenses when required (as penalty for withdrawing from LISA). 

saajan_12

Frugalgal28 said:

Hello,

I am in my 20s, don’t have any debt aside from my student loan and have £25,000 saved in my LISA. I am going back to university in September and therefore I don’t think I will get onto the property ladder in the next few years. If I buy a house in the future I don’t think that it will be over 250,000 as I live in the north of England and I will also likely be buying with my similarly earning partner. 

I havent contributed to my LISA at all this year as I feel I may have enough in my LISA for a house deposit. I’ve kept the £4000 I’ve saved in a high interest easy-ish access savings account (can access 4x per year without penalty).

I have an emergency fund saved of 3-6 month living costs separately. 

Am I right to not put this £4000 in my LISA? I feel anxious about missing out on £1000 from the government but doubt I’d use it for a deposit in the future. And feel I may need to have some spare cash when I go back to university. 

Please let me know your thoughts!

There's no real 'enough' for a deposit - the more you have, the lower balance the balance that you're paying interest on. So I wouldn't look at 10% as a target to stop at, but rather a minimum which you should try to exceed. 

The only counter point is if you'll need money before that. I'd budget out how much you'll need during university less how much you'll be able to save in the next 8 months.
Then possibly put the rest into a LISA, either this tax year or next. 

Albermarle

As a very rough example.
If a house costs £200K and you have a 10% deposit the mortgage rate will be around 4.5% for a 5 year deal.
Your repayments will be £1000 a month .
If you have a 25% deposit, the rate will be more like 4.2% and of course a smaller mortgage and repayments would be less than £900 a month.
As with many things the more money you have, the better deals you can get. 

se2020

The thing with the lisa is you get one shot each year.
If you miss a year its gone forever and you can't get that 'free £1000' again.

If you have the £4k in a savings account and are planning on keeping it saved then it's a no-brainer to stick £4k in the lisa and get the £1k.

But, if you think you will want some extra spending money at uni don't worry about sticking it into the lisa. 
Once you've left uni and have a job its not a huge hurdle to earn that £1k with a bit of overtime. 
Even if you spend the whole £4k at the student bar earning an extra £5k over a year when you are working can be done easily enough if you need to.

One thing I would say, 
Although you may be able to buy a house for £250k in the North property prices elsewhere can be a lot higher.  There are plenty of first time buyers who complain about being hindered by the £450k cap in the lisa!

A change in circumstances in the future might make your £25k deposit a bit tight.
Either house prices rising, lenders requiring 25% deposits or a job offer that needs you to move down south.
Plus you need a good few £k for the other costs involved with buying a house not just 10% as a down-payment.