LISA penalty and Buying a House

Lookingforadvice8

I have been saving in my cash LISA for a long time to buy a house. Recently, I decided to buy a house with my partner, but the properties we are considering exceed the 450,000 threshold. Consequently, I anticipate being penalised if I use my LISA as the deposit.

I am aware that the government is considering reforming LISA, but it won’t occur before our house sale. I’ve been contemplating whether it’s worth keeping this money in my LISA in the hope of withdrawing it later without a penalty. I wonder if anyone else has any thoughts on this? 

eskbanker

There's precious little information about what the LISA replacement will look like, so not much to go on in terms of whether or not there'll be the opportunity to withdraw from the old product without penalty (or to transfer into the new one and do the same from there).

Seems to me that it'll come down to whether or not you actually need the money for the purchase - if so then you pretty much have to withdraw regardless of penalty, but if you don't need it then there's little value in withdrawing if that can be deferred until the situation is clearer.

saajan_12

Lookingforadvice8 said:

I have been saving in my cash LISA for a long time to buy a house. Recently, I decided to buy a house with my partner, but the properties we are considering exceed the 450,000 threshold. Consequently, I anticipate being penalised if I use my LISA as the deposit.

I am aware that the government is considering reforming LISA, but it won’t occur before our house sale. I’ve been contemplating whether it’s worth keeping this money in my LISA in the hope of withdrawing it later without a penalty. I wonder if anyone else has any thoughts on this? 

The main question is can you afford the purchase deposit without any of the money in the LISA? Even if you have enough of a deposit saved outside, if you added the LISA money post penalty then would that lower your LTV and save you more in interest vs the penalty? 

Under the current rules, you can use it towards retirement (after age 60). We don't really know what a reformed version would look like and what the terms for transfers will be. After your purchase, even a reformed LISA may not be useful eg if the limits were changed but it still related to main home purchases. 

Kim_13

… and if you need some of the money but not all of it, then only withdraw the amount you cannot proceed with the purchase without so as to minimise the penalty. The penalty will be calculated on the sum that you take out, not the whole pot. So if you needed £10,000 to put toward the purchase, you would have to ask for £13,333.34 (13,333.34 * 0.75 = 10,000.005.)

george4064

Just to add, if you do end up leaving some or all of the cash within your LISA, it's very much worthwhile converting it to a Stocks & Shares LISA and investing it.

Since you won't be able to touch that money until you're 60, you will have sufficient time horizon for the higher risk than keeping it in cash.