9 things you need to know about LISAs: first-timer buyer special

LISAs – also known as Lifetime ISAs and Lifetime Individual Savings Accounts – were introduced in 2017 as a way of helping first-timer buyers save for a deposit. They have been back in the news recently, so here are 9 things you need to know about LISAs.

1. The Government will give you free money!

The Government really wants people to save a deposit for their first home and they’re paying people to do so. That’s no typo! For every £10 invested in a LISA, the Government will add £2.50 as a top up. Just how much free cash can a saver earn? A LISA holder can save up to £4,000 annually in a LISA, with the Government contributing a maximum of £1,000. What’s not to love? Well, there are some restrictions.

2. If you’re 38, you’re almost too late

You can only open a LISA if you’re aged between 18 and 39 so if you’re 38 and still haven’t bought your first property, don’t put off the decision. The LISA’s age restriction is important when you consider the average age of a first-time buyer in the UK is 33.8, according to finder.com. 

3. Plan badly and you may miss your golden window of opportunity

Also bear in mind the LISA holder must make their first deposit into the account before they turn 40 and savers are not allowed to add any more money to a LISA once they turn 50. These restrictions should encourage savers to open a LISA early in life to benefit from the longest savings window possible. 

4. You won’t be able to buy quickly using a LISA

A lesser known restriction attached to LISAs is the time that must have elapsed between making the first savings deposit and purchasing a property. It’s not possible to stick cash in a LISA and buy a home after 6 months – a buyer must wait 12 months after paying in their first savings sum.

5.  Buyers must stick to tried and tested methods

First-time buyers hoping to benefit from a LISA must meet two basic conditions: they need to use a mortgage supplied by a bank or building society, and a conveyancer or solicitor must oversee the purchase, as the LISA deposit funds will only be released to a legal professional.

6. You’ll be punished if you access your money for unofficial reasons

Although money in a LISA should only be used to purchase a first home or fund retirement, it can be withdrawn if the account holder needs the cash. All unauthorised withdrawals that don’t fall into these two categories will be subject to a 25% charge: basically the Government clawing back its contributions. 

7. LISAs do not love London

One of the LISA’s main restrictions pertains to price – the value of the property bought by a LISA holder must be £450,000 or less. Although this will buy you a starter home practically everywhere in the UK, there’s a big issue in London. The Government’s own house price index shows the average price of a property in the capital is £547,000, leaving many Londoners unable to benefit from a LISA. 

8. LISAs are exempt from the Government’s ISA reforms

The Autumn Budget was bad news for many ISA savers. The Chancellor announced that the tax-free cash ISA allowance will be reduced from £20,000 to £12,000 for under 65s from April 2027. The move is designed to force more people to save in stocks and shares ISAs, which will retain their full £20,000 tax-free status. LISAs are special, however, and will not be included in the reform but….

9. The end of the road is coming

The Autumn Budget also told us that LISAs will be no more, as the Government isn’t happy with the account’s current complexities and restrictions. Although there are very few details, we do know there will be a LISA replacement specifically for first-timer buyers – promised to be simpler and kinder to savers. Money currently held in LISAs will be secure.

If you are a first-timer buyer saving for a deposit, let us help with properties to buy in your budget. Register your details with us and we’ll let you know when suitable homes come onto the market.