In this week's millennial money episode, Money to the Masses financial expert Damien Fahy and I speak about the differences between the Help to Buy ISA and the Lifetime ISA.
Help to Buy ISA
The Help to Buy ISA is a savings product designed to help you save for a house, with the added bonus of receiving a 25% Brucey bonus from the government. But like all good things, there are restrictions and so we have summarised the pros and cons below.
What are the pros of a Help to Buy ISA?
- You get a 25% bonus from the government
- You can access your money at any time, however you'll not receive the government bonus
- Open to anyone over the age of 16
- You can take advantage of the bonus as soon as you have £1,600 in your ISA
- If you are in a couple both of you can have a Help to Buy ISA and use it to purchase the same property
- Interest rates are marginally better than on a Lifetime ISA
What are the cons of a Help to Buy ISA?
- You can only pay up to £200 a month (except for the opening month where you can deposit up to £1,200.)
- There is a maximum bonus from the government of £3,000
- The maximum property value is restricted to £250,000 (£450,000 in London)
- You only receive the government bonus at the completion of the property - so you will need to have access to additional money to cover any fees
- The Help to Buy ISA is being scrapped in November 2019 but it can be used until 2029.
- Help to Buys ISAs are cash only
Lifetime ISAs were introduced to ultimately replace the Help to Buy ISA and they can be used to either purchase your first home or to fund retirement.
What are the pros of a Lifetime ISA?
- 25% government bonus accrued monthly
- Interest is paid in annually
- Lifetime ISAs can be both cash and stocks and shares ISAs
- Can be used for both purchasing a property and retirement
- Can deposit up to £4,000 a year
- Maximum government bonus is £32,000 (this is assuming you open from the age of 18 and contribute the maximum every year until the age of 50)
- Can be opened from aged 18-39
- Both people in a couple can have a Lifetime ISA and use it to buy the same property
- Can open with as little as £1
What are the cons of a Lifetime ISA?
- Lifetime ISAs typically have lower interest rates than Help to Buy ISAs
- Can only open until the day before 40th birthday
- Can only pay into the Lifetime ISA until the age of 50
- Penalty of 25% applied if accessing the money early
- Maximum property limit of £450,000
- Cannot purchase a home until the Lifetime ISA has been open for at least 12 months
It is worth noting that you can have both a Help to Buy ISA and a Lifetime ISA but you can only use one government bonus to purchase a property.
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