Lifetime ISA: A Suitable Replacement for Help to Buy?
Since the announcement of the Help to Buy ISA in the early months of 2013, first-time buyers have been using it to secure a leap up onto the property ladder.
The concept of ‘free money’ seemed a no brainer for many homebuyers, but with the government ISA due to be replaced with the already existing Lifetime ISA in November 2019, questions are being raised about whether it is a suitable replacement.
Should the Help to Buy scheme be extended?
With recent changes to the Help to Buy, homeowners could reduce their mortgage payments by spreading their borrowing over an extended period, there is some uncertainty around whether the Help to Buy will be extended beyond November 2019.
With recent talks of a general election in parliament, The Conservatives have hinted they could extend the Help to Buy while offering greater incentives to first-time buyers.
Meanwhile, Labour has suggested they would prefer to help potential buyers by offering tenants the right to buy their rented properties at a discounted rate. The Scottish National Party, on the other hand, think the Lifetime ISA is a ‘gimmick’ that should be abolished.
“The Lifetime ISA offers much more flexibility”
The Help to Buy scheme has had its critics over the years, and many conveyancers believe the Lifetime ISA actually offers more benefits for first-time buyers.
Sara Best, Residential Property Lawyer and Partner at ET Law, has stressed the importance of letting first-time buyers know there are different options out there, other than the Help to Buy.
She told us:
“The Lifetime ISA offers much more flexibility in how you can save for your first home, with buyers being able to save up to £4,000 a year either in a lump sum or instalments while still receiving a 25% bonus from the government.”
Conveyancers should make homebuyers aware of the Lifetime ISA’s early withdrawal penalty
There are some suggestions that the penalty for early withdrawals from the Lifetime ISA could put some homebuyers off. With the Help to Buy, first-time buyers are confident they can withdraw their money at any point without paying any fees – albeit they will lose out on their 25% bonus.
However, the Lifetime ISA will see buyers charged a 25% penalty for early withdrawals that aren’t put towards a first home or retirement. Despite this, Sara believes the pros far outweigh the cons.
Sara Best added:
“Here at ET Law, we have already started to encourage first-time buyers to make the move from the Help to Buy ISA to the Lifetime ISA scheme, in order to make the most of the increased amount of tax-free savings that can be made and the more relaxed rules which apply.”
Should we be encouraging first-time buyers to open a Help to Buy ISA before the deadline?
Do you think we should be encouraging first-time buyers to open a Lifetime ISA, or should we stress the importance of opening a Help to Buy ISA before the deadline – something that Money Saving Expert Martin Lewis has stressed over recent months?
Kindly shared by ET Law