Why one door is closing on getting your own home - Martin Lewis

Thousands of pounds of free cash is still available to first time buyers. Photo: Rui Vieira/PA W
Thousands of pounds of free cash is still available to first time buyers. Photo: Rui Vieira/PA W
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This is call for urgent action to young people who one day want to own their own home.

Thousands of pounds of free cash is available for first-time buyers but the easiest way to get this – a Help to Buy ISA – closes to new applicants on November 30.

If you’re a parent or grandparent of someone who may fit this category then spread the word, as young people especially are tough to get this message across to.

There are actually two ISAs which give first-time buyers free cash – the Help to Buy ISA (H2B ISA) and the Lifetime ISA (LISA). 

While you can open both, you are only able to get the home-buying bonus from one.

With both, as well as interest, a 25 per cent boost is added to your savings by the state – a £250 boost per £1,000.

This only applies to first-time buyers, defined as someone who has never owned or part-owned a property anywhere.

As ISAs are individual products you can do it even if you’re buying with someone who’s owned before. If two first timers are buying together, you can have one each.

If you want a Help to Buy ISA, move quickly. Provided you open one by November 30, it stays open for 10 years, so you can keep putting money in and getting the bonus – and if you don’t use it in 10 years you can just withdraw the cash.

Is a Help to Buy ISA better than a LISA? Well, it depends. There’s no one-size-fits-all. Both have strengths and weaknesses. 

Here’s a brief summary… 

 H2B ISAs are open to more people. You just need to be 16 plus. To open a LISA you need to be age 18-39, so those 40+ should open an H2B ISA while they still can.

LISAs can also be used for retirement savings (though they’re less attractive for this), as once you’re 60 you can access the money and the bonus without penalty.

The LISA bonus can be thousands of pounds bigger. You can save far more in LISAs – up to £4,000 each tax year – and the bonus will be paid monthly until you’re 50.

With H2B ISAs you can save a maximum of £1,200 in the first month and then up to £200 a month, getting the bonus on up to £12,000.

This can make a big difference. For example, open a H2B ISA today and max it out for two years and you’d have £5,800 in it, meaning a £1,450 bonus.

With a LISA, if you put £4,000 in today and £4,000 in on both April 6 2020 and 2021 (the new tax year), that’s £12,000 saved – a bonus of £3,000.

 LISAs let you buy a bigger property. Both can be used for a mortgage on any residential property, up to a set value. However for H2B ISAs the limit is £250,000 (£450,000 in London). For LISAs it’s £450,000 everywhere.

H2B ISA bonus can be triggered faster. To get the H2B ISA bonus you need £1,600 plus saved, which is do-able in just three months. 

Yet LISAs only pay the bonus if they’ve been opened a year or more (consider opening a LISA with £1 now, to start the clock).

 LISA bonuses can be used for exchange as well as mortgage deposit. The LISA bonus is added each month and you can cash it in to give the seller the 10 per cent deposit most request at the point of contract exchange.

The H2B ISAs bonus only comes after that, between exchange and completion, so it only helps as a deposit to reduce your mortgage borrowing, not to give to the seller.

 H2B ISAs let you withdraw penalty-free. That means even if you’re not sure you’ll buy a house, they’re a no-brainer.

With LISAs you pay a penalty to withdraw cash unless it’s for a home or you’re over 60, which works out as a loss of 6.25 per cent. So only save in a LISA if you’ll definitely buy a qualifying house.

 H2B ISAs have better interest rates. Generally, rates are better with Help to Buy ISAs. For full updated best buys for both go to www.mse.me/HelptoBuyISA and www.mse.me/LISA. Though if a LISA is right for you, its bigger bonus usually makes up for the lower interest.  

It’s worth noting if you’ve paid into a cash ISA in this tax year you can’t get a Help to Buy ISA (you can have a LISA), though there’s a work around this via the www.nationwide.co.uk, which has a system so you can get both. 

So in a nutshell…

If you’re aged 18-39, will definitely buy a home costing under £450,000, can max out the savings and won’t buy within a year, go for a LISA, as you will get a bigger bonus.

If you’re older, need to buy quickly, aren’t saving that much, or aren’t 100 per cent sure you’ll buy at all, it’s safer to stick with a H2B ISA.

If you’re not sure, open both with £1 (if you can, put more in a Help to Buy ISA as you’re allowed to put £1,200 in the first month and you can withdraw it at any time).

This gets a foot in the H2B ISA door before the November 30 deadline and gets the clock ticking on the LISA’s one-year- before-withdrawal rule.

Martin Lewis is the founder and chair of MoneySavingExpert.com. To join the 13m people who get his free Money Tips weekly email, go to www.moneysavingexpert.com/latesttip