This April, ISAs celebrate their 21st birthday. So, I
thought it would be a good idea to remind you how good an investment vehicle
they can be, just before the end of this tax year.
Statistics suggest ISAs have become a huge hit with savers. The value of adult ISAs stand at over £600 billion, shared between around 22 million account holders. They have also proved popular with successive Chancellors as a means of encouraging the saving habit with the annual subscription limit having almost trebled since launch.
The Help to Buy ISA is a government backed scheme that
provides a 25% bonus on the balance of the account with a maximum bonus of
£3,000, provided the money is put towards the purchase of your first home
before 1st December 2030 – so long as the house price is lower than £250,000
(£450,000 in London).
For first-time buyers who are saving toward a deposit, opening a Help to Buy ISA really is a no-brainer. Offering a 25% bonus of the total you have saved, in addition to interest accrued, there is no other savings account that can get close to these returns.
For many first-time buyers, saving for a deposit
represents the biggest hurdle between them and getting on the property ladder.
For this reason, the Help to Buy ISA will be music to many people’s ears.
The government backed scheme means that for every £1,000 you save, the government will credit you with an additional £250. This type of return is streets ahead of traditional savings platforms and is why over 1 million people have opened accounts since their inception.
If you want to reap the rewards of this scheme you will need to act fast; the deadline to open a Help to Buy ISA account is 30th November 2019.
The account allows for regular saving; the first
instalment can be of up to £1,200, with a maximum of £200 able to be deposited
in each month thereafter. Whilst there is no limit on the amount that can be
saved into a Help to Buy ISA, the bonus is capped at a maximum of £3,000. In
other words, you will attract the 25% bonus on the first £12,000 of savings
only. Given the monthly caps on deposits, it would take just over four and half
years to qualify for the maximum bonus so opening an account early is essential
to fully make use of the scheme.
The accounts are available to anyone aged 16+ and
can be used to buy a property of up to £250,000 (£450,000 in London). If you
are looking to buy with a partner or friend, you can each open an account
meaning your bonus could total £6,000.
Although the accounts are designed for longer term saving, the bonus can
be applied to as little as £1,600 meaning it is still worthwhile opening an
account, even if you are as little as three months away from purchasing.
What are the
alternatives?
In some circumstances, a Help to Buy ISA may not be
the best fit; perhaps you wish to buy a property in excess of the threshold or
you wish to deposit more than the ISA allows.
Whilst the Help to Buy ISA has had much press, the
Lifetime ISA (LISA) has flown largely below the radar. One of the reasons for
this is the lack of availability; to date, only a handful of providers offer
the LISA. Another is its name; the Lifetime ISA is predominantly thought of as
product for retirement planning.
Lifetime ISA (LISA)
Sure enough, a LISA has many benefits for
retirement planning, but it can also benefit first time buyers in much the same
way as a Help to Buy ISA, with some key differences.
With a LISA, you are not capped at £200 per month
and you can pay in anything up to £4,000 per financial year, in a lump sum or
regular instalments. This could suit you if you already hold savings as you can
invest much more quickly. With the end of the tax year just a few days away,
you could make a £4,000 deposit now (before 5th April 2019) and then
invest a further £4,000 as soon as 6th April 2019.
Upon withdrawal, the LISA will also qualify for the
25% bonus, providing the account has been open for at least 12 months. The
£4,000 yearly limit means a potential bonus of £1,000 per year with essentially
no cap on the maximum bonus allowed (the bonus is capped at £33,000 meaning you
would have to have the account for more than 33 years to hit the limit).
The LISA also allows for a higher purchase price
outside of London with a £450,000 limit applicable anywhere in the country.
There are many factors that will determine which
type of account is right for you. The table below highlights some of the main
features and differences of each:
Help to Buy
ISA vs Lifetime ISA
Help to Buy ISA
Lifetime ISA
Opening age
Anyone aged 16+
Anyone aged 18-39
Maximum contribution
£200 per month (£1,200 in the first month)
£4,000 per tax year
Maximum property value
£450,000
£250,000 (£450,000 in London)
Maximum bonus
£3,000
£33,000
Penalty if you don’t buy a house
None (You just don’t get the bonus)
Yes, unless you leave it until you are aged 60+
How long before the account qualifies for bonus
Once you have saved £1600 (minimum 3 months)
12 months from opening the account
When is the bonus paid
On completion
On exchange
Should you have any questions, or need help deciding if a Help to Buy ISA is best for you, please contact one of Temple Wealth’s advisers. We can advise you on all aspects of the house buying process – from beginning to save for your deposit to finally buying a house and getting the right mortgage for you.
Call 01329 282882 or use the form on our Contact Us page.
The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investing in shares should be regarded as a long-term investment and should fit in with your overall attitude to risk and financial circumstances.
Your home maybe repossessed if you do not keep up repayment on your mortgage.
