Buying your first home is a dream for many young adults up and down the country. However, this has become harder and harder throughout the generations as house prices have risen.
To support first time buyers in overcoming these obstacles the government has launched many First-Time Buyer initiatives and schemes. Two of their most recent schemes are their Help to Buy ISA and their Lifetime ISA (LISA). But what are the differences between these two ISA’s and which one should you get?
Help to Buy ISA:
The Help to Buy ISA was introduced to support First-Time Buyers with raising enough money to put down a substantial deposit to enable them to make buying their first home more affordable.
To be eligible for the ISA you must be 16 years old or over, have a valid National Insurance number, be a UK resident and, of course, be a First-Time buyer. There are also some requirements that your property must pass including it must not exceed £250,000 purchase price limit (£450,000 in London).
The account can be opened with a range of banks, building societies and credit unions, who will give you interest on the amount held in the account and in the first month of opening the account you are allowed to deposit as much as £1,200 into it. Each month thereafter, you can deposit as much as £200.
Where is the government’s role in this you may be asking? Well, they will give you 25% bonus on the contributions that you make into the account. You can claim your bonus once you have contributed at least £1,600 into the account (they will give you a bonus of £400) and the maximum you can contribute overall is £12,000 (meaning a Government bonus of £3,000). The bonus is claimed by your solicitor or conveyancer when buying your first home.
You will then be able to use the money you have contributed with the interest to help with the deposit for your new home. The bonus, however, will only be released to be included with the funds consolidated at the completion.
Lifetime ISA (LISA):
The lifetime ISA is going to be introduced to the market on 6 April 2017. To be eligible for the LISA you must be between 18-39 and, if you want to use it as a deposit for your property, the property must be your first home. (The LISA can also be used for retirement planning).
Similar to the Help to Buy ISA, the government will contribute a bonus of 25% to any contributions you make to the account; however, the LISA enables you to put as much as £4,000 in per year, meaning every year the government could add to your pot an additional bonus of £1,000.
Other differences between the LISA and the Help to Buy ISA are that all of the money can be used on exchange but must be paid to the surveyor/solicitor and it can be used to help fund a house purchased up to the value of £450,000.
On the other hand, you can’t access the funds for a property purchase until you have had the account for twelve months and so it will not benefit any First-Time Buyers looking to move in the immediate future.
There are pros to both, none more so than the 25% government bonus. However, the long and short is simple, if you are looking to move before April 2018, the only option out of these two schemes for you to use is the Help to Buy ISA. If you would like more information, visit a local bank and/or building society who are involved with the schemes.