Countdown to the Lifetime ISA

In the 2016 budget, the British government announced the creation of an ISA (Individual Savings Account) that blows most other ISAs out of the water. To be unleashed on the good people of the United Kingdom in April 2017, the LISA (Lifetime ISA) effectively dishes out a 25% return on investment with up to £32,000 of real free money up for grabs (insert terms and conditions here). A Money Tree that cannot be overlooked, this ISA is set to revolutionise the UK housing market where nine in ten Britons between 16-34 are expected to not be able to afford to buy a house by 2025… Yet so many either do not understand it or do not know it even exists – enter Money Tree Man!

Firstly the way it works is, you can pay in up to £4,000 per year into this bad boy. At the end of the tax year, the government pays you 25% on the deposits. These deposits can be made however you like; monthly instalments, a lump-sum at the beginning, all of it paid in at 23:59 on 5th April 2018 – it really is up to you. Of course, there is only one little tiny bitty little catch; you can only spend it on either your first house, or after you turn 60 otherwise a penalty of 25% is payable. For example, Mr. Jack Daniels pays in £2000 in a tax year and the government throws £500 into his account – cue the champagne! He then decides that he wants to start collecting expensive whiskey barrels and so he withdraws it. Well, he’d stand to lose £625 (25% on £2500)… OK so maybe it is a bigger catch than I originally mentioned, but for those who are set on using it for their first home, it really is a no-brainer!* In a time where the average wage and the average house price is at it’s biggest gap ever, the timing of this ISA could not be more prudent, giving young savers from the ‘Generation Rent’  not only a chance, but a means to buying a house of their own.

Both the Money Tree Lady and myself are planning on maximising the benefits of the Lifetime ISA to throw at our first house. What this translates to is a healthy £6,000 – £8,000** of free money that over the lifetime of a mortgage saves a small fortune in interest payments. Needless to say that the MTL and I are very excited for this, with ‘Lifetime ISA’ replacing ‘cute kittens’ in MTL’s google search history***.

Is this ISA good for retirement? I will answer that honestly and say, I really am not too sure but if you, like me, are chasing financial independence then in my opinion it really is not for you. Locking away £4,000 a year until you’re 60 means that if you retired at 40, there will be two decades where you cannot access your own money without being penalised. And that is assuming the rules do not change in that time as they always do with state-involved retirement packages. When placed next to the multiple investment options at your disposal, the LISA really doesn’t compare as a retirement option. And even if you are not chasing financial independence, the LISA does not appear to trump the Workplace Pension. That being said, I’d be really interested to hear your thoughts on this so please leave a comment below.

And now for the bombshell, with delays of the details of the mechanics of the LISA not being published soon enough, high street banks have not had sufficient time to prepare themselves to offer this product. Come 6th April there may be very few banks actually offering this account. A few of the institutions that are set to offer the LISA are doing so as a fund, and so your cash will be held in stocks by fund managers (more on why I do not like them later). I would strongly advise against getting a LISA in this way as fund managers will charge you a fee that high street banks will not. Furthermore, your savings would be subject to stock market volatility that really is not ideal for short-term investing.

I will write more on this once we have more information on the Lifetime ISA, so watch this space!

 

*Quick note, this ISA is only open to UK residents aged 40 or below. Those who were born on or before 6th April 1977, unfortunately this isn’t for you – though you guys were alive to witness the birth of Star Wars so you cannot have it all your way!

 

** Amount depends on how long we save. It also assumes that we will have £4K each per year to deposit into the Lifetime ISA.

 

*** I won’t tell you what it has replaced on mine…

 

Click here fore more details on the Lifetime ISA

 

24 Comments

    1. Hi Morgan – no problem and thank you for reading! Jsut so you know, two people can use a LISA on one house as long as they are both first time buyers. If one of them is not, then the one that is a first time buyer can still use their LISA =]

      hope this helps!

  1. This ISA is only good if your a first time buyer. Your getting conned if you use this instead of your retirement package

    1. Hi Barrington! I definitely understand why some would find it attractive, but I personally do not think it trumps the Workplace pension. You stand to lose quite a lot if the rules of the LISA changed. As it is brand new, it is bound to change quite a lot before the dust settles

    1. I believe Lloyds, alongside HSBC, are some of the high street banks that have openly stated that they will not be offering it because of a lack of prompt information from HMRC and the treasury. But don’t be too disappointed Abdul!, there will be others!

  2. This ISA is amazing! Had no idea about it and I am hell bent on buying a house. I have just dropped everything I am doing tonight so that I can look into this further 🙂

    1. Hi Clara, it is great, but the amount of attention it has gotten is rather lacklustre… hoping that it snowballs from April!

  3. This is really top stuff. Extremely educational

    You should start a Youtube channel or a podcast. I am sure you would get a really big following

    1. Hi Daniella! thanks for reading =]
      Not sure I like my voice enough to do that haha! maybe if the blog grows enough to merit it haha!

  4. Thanks for sharing MTM! I’ll look forward to hearing more on the Lifetime ISA – I really hope banks get on board with this new ISA especially for first time buyers. Just hope there are no big surprises like the help to buy ISA…

    1. Thanks for reading Sophia! The banks need to fix up… and fast! I think the government and the banks learned a lot from the backlash in the Help to Buy issues… the LISA does not look like it will have the problem that the help to buy had because the bonus will be paid in DURING the lifetime of the account as opposed to when it closes. It would be wise to take a microscope to the Ts&Cs though before throwing all of your hard earned money into it =]

  5. This ISA sounds amazing and will probably get a lot of people my age saving. I still don’t understand why the banks are not all running to offer it. surely more money saved with them means more money that they can lend out?

    1. Hi Eoin, I agree! Will be amazing for ‘generation rent’! Basically, after the PPI scandal, banks are terrified of mis-selling anything to people again. So what you have now is high street banks being overly cautious with launching new accounts especially ones that may affect pensions. Screwing with old people’s money is a fast way to get yourself some bad publicity haha

    1. Let me know how it goes for him =]
      Because of the mechanics of the LISA, he could find himself with a lot of money from relatively little savings – which is great! That may be the jump start he needs to go from a ‘nightmare saver’ to a dream saver!

  6. I currently have the Help-To-Buy ISA but this Lifetime ISA sounds a lot better. So if I opened it now I would have until the new tax year to max out the 4K, not 12 months?

    1. Hi Jez, thanks for reading. If you’re after a house, as a first time buyer, there really are few things that rival the LISA.

      If you did open one, you should note that the £4000 limit runs from 5th April – 4th April. So in your case, you would have to attempt to max out the account at by next April =]

  7. Thanks for the info on the Lifetime ISA MTM, been searching for something for a while to save for a house.

    The LISA sounds like the best way forward, if I’m able to save more than £333 per month (or more than £500 per month now that there’s only 8 months left until April) what do you reckon is the next best place for saving for a house?

    1. It really does depend on the following:

      – How long you believe it will take for you to save for a house
      If it is a very long time (more than 15 years), consider stocks. For anything less, consider more liquid options

      -your degree of confidence in your ability to save
      You get penalised if you withdraw and spend the LISA money on anything other than retirement or a FIRST house. Because of this, if you think you may need to dip into your savings at any point, make sure you have a back up =

      I’m reluctant to tell you where to place your money because (as I have mentioned before) I’m not a financial adviser, but I hope you can use this information to educate and help yourself =]

  8. Hey guys =)

    So if I open the LISA with Skipton will I still be able to switch if a high street banks like TSB comes out with a Lifetime ISA with a better interest rate?

  9. I’m on track to buy a house in 18 months – is it still worth getting the Lifetime ISA now?

    Wish the government had schemes like this when I first started saving 3 years ago, would have significantly cut my saving time.

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