LISA or HtBISA; that is the question?

Help to Buy ISA’s are ending soon (30th November 2019) and I don’t know which I should and where I should get it from. Time to have a look.

HtBISA

A Help to Buy ISA (HtBISA) is a government-supported, tax-free incentive to make first time buyers buy houses.

The conditions:

  • The government’s bonus will only get paid at the end of the term.
  • The bonus is only given to what you put in it — not the interest that would have been added.
  • You must save over £1,600 to qualify for the bonus.
  • You and your partner can have separate ones and use the two bonuses for the same house.
  • It can’t be used for Buy to Let schemes.
  • A solicitor will need to be involved in buying the house, as they must request the bonus, and they can charge up to £60 for it.
  • When you are putting down the deposit, don’t rely on the bonus amount. You only get this when the buying process is complete and some solicitors may be reluctant to accept it. The bonus will help reduce your mortgage payments however.
  • If you have a LISA, you cannot use the bonus from that and the HtBISA for your first time house.
  • You will be able to open an HtBISA with max £1,200 in it and it will get the bonus. After opening the max you can put in is £200 per month.
  • If you are buying soon, you can get to the £1,600 limit within 3 months!

In summary, HtBISAs fit into three brackets:

But the homes value must be under £250k (or £450k in London). The target should be the middle option for the most efficient return.

Okay what are LISAs:

A Lifetime ISAs is a government-supported, tax-free incentive to make people save for two large life events: retirement or buying a first home.

The conditions:

  • You must be living in the UK but you don’t need to be a citizen. The house must be in the UK.
  • The LISA rates aren’t fixed like the HtBISAs are, so the Gov may change the terms. Instead, the bonus you get is directly added to your savings pot each year.
  • You must be 18–39 to open an account and you will no longer be able to put money in after 50 years of age.
  • You can be penalised the equivalent of 6.25% of what you withdraw, if for any other reason. Here is the example from Money Saving Expert:
  • You can move your LISAs around to different providers to find the best rate.
  • If you are buying a house, the property value must be less than £450k and must be in the UK — otherwise you are penalised.
  • You cannot Buy to Let.
  • Solicitors fees will be charged and have no cap (estimated at £100).
  • If you have a LISA and a HtBISA, you may only use one of them.
  • You and your partner can both have a LISA and hence can both have the bonus.
  • You must have your LISA open for over a year to withdraw.
  • If you are not buying a property, you can only withdraw it for retirement — once you are 60+. At that point, you can withdraw it for anything you like — like a normal savings account. Similarly, it will keep gaining interest like a normal savings account and it is tax free as it is an ISA.

Note: LISAs are not pensions, they are supplementary

If you are employed, you will have been auto-enrolled in a pension, where your employer is adding to it as well as you. Your pension contributions come out before tax, so to save £100 into your pension, you pay £80.

Graphs:

Max returns if opening from empty
The performance of Cash ISAs (Blue) vs Stocks and Shares ISAs (Orange) from https://www.cityam.com/cash-isa-vs-stock-market-isa-which-has-returned-most/
From Which: https://www.which.co.uk/money/savings-and-isas/isas/lifetime-isas-ac6mf6s7r9d5
The difference between the MoneyBox Cash ISA and the Average S&S ISA is £375

Questions/Recap:

Are you SURE you will buying a house in the UK, if at all?

This is a bet. You are betting you won’t be renting for ever. You are betting you won’t be moving abroad.

Are you planning to buy within the next 10 years?

If so, both are applicable; if not, you can’t use the HtBISA.

Do you think you will be able to save over £12k in the next ten years?

This is the maximum amount for the HtBISA. Save more than this and you won’t get anymore of a bonus than if you’d just saved £12k. With a LISA, you would receive more of a bonus.

Have you got an idea of what you would want to pay to a mortgage per month?

You should have a quick look. Type Mortgage Calculator into Google and there is an estimation tool to get a rough idea. Don’t forget that as a homeowner, if something breaks, you fix it. Your rent costs include this, but a mortgage doesn’t.

Google’s mortgage calculator

Do you expect the house will cost less than £250k when you buy?

If so, and you expect to buy before 2030, get a HtBISA.

Do you expect the house will cost more than £450k when you buy?

If yes, LISAs and HtBISA aren’t for you. If above £250k but below £450k then a LISA may work for you.

How much do you think you will be able to save per month?

If it is below £200pm and you are definitely getting a house, a HtBISA is probably for you. If it is above that you may still be better off getting a HtBISA as you need to include the interest you would get on the other savings account. If it is nearer £333 pm, you will be at the max of the LISA.

Summary

So a HtBISA seems to be a less risky ISA, with fewer conditions but two strong ones: the home must be less than £250k (or £450k in London) and it must be bought before 2030. It also comes with slightly better interest rates.

…don’t save more than you can afford to lock away

Where to get financial advice?

If you are uncomfortable making the decision, consider getting a financial advisor:

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