Which “help-to-buy” suits you best?
If you are a young doctor or dentist, perhaps just graduated, it is likely either now or in the coming years, you could be looking to purchase your first home. The government have goals to help first-time-buyers realise their dreams of home ownership. Which of the government schemes is best for you?
This does not constitute advice and advice should be sought in all instances before acting on it.
Option 1: Help to Buy ISA
The Help to Buy ISA was launched in December 2015, and since it’s creation, over half a million young aspiring homeowners have opened an account.
Market statistics, so far, show:
- Almost 1500 property completions have utilised the scheme
- Over 2000 bonuses have been paid
- The average value of the bonus paid was £421
- The average property price was almost £164,000
- 29 was the average age of the first-time buyer using the bonus – compared to 30 being the national average
How does the Help to Buy ISA work?
Those first-time buyers saving for a deposit can invest £200 per month into their dedicated Help-to-Buy ISA. The government will pay an additional £50 for every £200 saved – that’s a 25% boost to the fund. Interest is also accumulated, the rate of which varies per provider.
The government will contribute up to a maximum of £3,000. Therefore, as a saver, you will need to have invested £12,000, to get the full allowance.
With a £200 per month cap, this takes time to achieve the full contribution – 55 months, in total.
However, many savers just use the account to get a the boost they need, and take advantage of whatever free money the government are offering.
It is also possible to invest a lump sum of £1,000 to open the account. This will give you a £250 from the government when you come to buy your first home.
Things you need to know:
- You can buy a home with a purchase price up to £250,000, or £450,000 in london
- New savers can open an account until 30 November 2019 (at the moment)
- Bonuses must be claimed by 1 December 2030
- The bonus is paid out on a minimum balance of £1,600, and a maximum balance of £12,000
Is it for you?
- Even if you are near to completion, you could snatch a £400 contribution by paying the £1,000 lump sum and 3 monthly payments
- If you are planning to buy in the longer-term then a Help-to-Buy ISA is a good consideration to accelerate your target deposit, or top-up your deposit value and potentially afford a higher value first home.
Option 2: Lifetime ISA
The Lifetime ISA will launch in April 2017. Whilst it isn’t available as yet, many young doctors and dentists have been contacting us for information and to get the ball rolling for next year.
How will the Lifetime ISA work?
Unlike the Help to Buy ISA, the Lifetime ISA (LISA) doesn’t have a monthly cap for investment. It is possible to invest as much as you like on a monthly basis. Up to £4,000 annually will qualify for a 25% bonus from the government.
The bonus is paid into the account each year, which has the added benefit of boosting the account along the years, which directly affects the accumulated interest. This can speed up savings.
Things you need to know:
- You can open a LISA account if you are between 18 and 40 years old
- Funds can be withdrawn from the ISA to buy a first home in the UK, worth up to £450,000
- The account needs to be open for 12 months to withdraw funds and claim the bonus
- Funds can only be drawn for a first home, or you will have to wait until you are past 60 to get your hands on the money for retirement purposes
Is it for you?
- As the account has a 12 month minimum, this option wouldn’t suit anyone looking to buy before April 2018.
- The LISA offers slightly better returns and more flexibility on investing. Therefore, if you are planning to buy in the medium to long-term, after April 2018, it could be worth using a LISA over a Help-to-Buy ISA, providing you meet age criteria.
- The LISA however, doesn’t offer more flexibility on withdrawals. If you need to access your money, then it is probably best to stick to regular savings accounts for now.
Want to open an ISA. Speak to Darren
If you need to discuss which ISA suits you best and compare offers from different providers, Darren can help. Get in touch to get the process started.
Tel: 01403 780 770