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

If you put in £200, the Gov put in £50.

Max input per month: £200 | Max total input: £12k | Max bonus: £3k | Need to buy before: Dec 2030 | Home must be less than: £250k (£450k in London)

You can take withdraw the money whenever you choose, but if you save consistently for 5 years and then buy a house, you will get the max £3k bonus.

The conditions:

  • The bonus is only given to what you put in it — not the interest that would have been added.

“If I put in £200 at 1% yearly interest and wait 24 years it’ll be worth £251.43 and then the government will pay 25% more so £62.86.” No. You will still only get £50.

  • ISA providers will give interest rates so you will see interest staking up each month (compound interest) on your savings, but not the bonus.
  • 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 the house costs £100k and there is a 10% deposit, unless you can convince the solicitor (which is possible), you may have a hard time if you only have the £8k and are relying on the £2k bonus to bring it up to £10k.

  • If you decide you want to take the money out for something else, it is fine. You just won’t get the government bonus.
  • 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:

Okay what are LISAs:

If you put £200 per month in, the Gov will put in £50. Hence it is similar to the HtBISA. The difference is, if you put in £333, the Gov will put in £83.33. This means over a year you can save more on a LISA.

Also, if you don’t save all year and than chuck a lump sum of £4,000 in, the Gov will put in £1,000, instead of £50 on the HtBISA. This is because LISAs are have a year limit, HtBISA are on the month. [Doing this could mean you could save in a better interest rate and move it over once a year.]

Max input per year: £4,000 | Max you can save: £132k | Max bonus: £33k | Redemption Terms: £450k first time home, or you must be 60+

The conditions:

  • 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:

Imagine you saved £1,000 and so got a £250 bonus . So you’ll have £1,250 total (ignoring interest, for ease). If you withdrew it and closed the account , the 25% penalty would be £312.50. So you’d get £937.50 back.

  • If you die, the money will pass on to your beneficiaries without the penalty — but it will be liable to inheritance tax.
  • 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

A LISA is after tax. To save £100, you need to earn £100 after tax, so you will have to earn £120 before tax.

Also, a LISA is an ISA, and you are only allowed to save £20k per year into an ISA. This isn’t a huge concern for most but it is reducing your benefit. If you go bankrupt an ISA is included in your worth, but a pension is not. Most commercial pensions, you can start withdrawing earlier than 60.

Pensions are more rigid — you can’t withdraw earlier than the age limit, where as LISAs you just pay a penalty.

Graphs:

Max returns if opening from empty

Now including interest rate, as HtBISA typically have better interest rates when you compare cash ISAs. One thorn here is that, LISAs can be stocks and shares LISAs — which have performed better as of late. In 2017/18, the average stocks and shares ISA gave 4.8% — compared to the average cash ISA (0.97%). Moreover, over the last twenty years, stocks and shares ISAs have averaged at 2.9%, compared to 0.6% for cash ISAs. Although, this does assume that there isn’t going to be another financial crash anytime soon.

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/

Even this needs to be taken with a pinch of salt, as interest rates were higher back then, and the stock market has had the dotcom crash (02–03) and the global financial crisis (07–08).

So here are my selections which I will quickly model, assuming no change in rates over a five year period in which you save the maximum each will allow you to each month.

From Which: https://www.which.co.uk/money/savings-and-isas/isas/lifetime-isas-ac6mf6s7r9d5

Taking MoneyBox cash LISA (£333 pm), the average S&S LISA (£333 pm) and Penrith HtBISA (£200pm), graphically that looks like this:

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?

If you take a LISA and you decide you wont be buying a house, you either can keep adding to its value for when you are 60+, or you pay 25% of the total ISA value (6% loss on what you put in) to get it.

If you take a HtBISA and you decide this, you don’t loose anything but the bonus the government were going to give you.

Are you planning to buy within the next 10 years?

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

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

Google’s mortgage calculator

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

Note: Have a look now, and have a look at how much that area’s house prices have increased over the previous years.

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

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

Summary

The LISA seems to be a more risky ISA, with more conditions and with a penalty (though, if possible, you could avoid the penalty buy not taking the money out and instead save for retirement instead), but does give a larger bonus. Though interest rates aren’t as good as HtBISA.

Which am I going to get? I am still not sure.

Martin Lewis suggests opening a HtBISA with £1 now as they cannot be opened after November and then decide later if you want to use it.

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

Where to get financial advice?

They can charge as a percentage of the money being moved, as an hourly charge or as a fixed fee. Money Saving Expert has more here:

Hourly charges can be anything from between £50 to £250 an hour, so make sure you ask before you go ahead.

I am not a financial adviser. I just have this problem too. If there is anything wrong please do tell me.

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