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Can I Use a Lifetime ISA to Buy a House?

Estimated reading time 3 minutes

ISAs have become a helpful way to get a foot on the property ladder. However, with there being a variety of ISAs, how do you know if the one will help you secure your first house?

The good news is, a Lifetime ISA has many benefits and can be used when buying your new home either through an online estate agent or a high street vendor.

What is a Lifetime ISA?

A Lifetime ISA is a great way to begin saving for a property. With an allowance of £4,000 per year and a generous 25% government bonus, you can accrue a cash sum that will enable you to buy your first house up to a value of £450,000. Should you already own a home, a Lifetime ISA can also be used as a savings account for use in later life. As long as you are aged between 18 and 39 and a British resident or crown servant you are eligible to open a Lifetime ISA.

Introduced by the government in 2017, the Lifetime ISA has meant that the range of savings options for British residents has increased and if you keep within the annual ISA limit of £20,000 you can invest across each type of ISA to watch your money grow.

The advantages of a Lifetime ISA

The biggest advantage of the Lifetime ISA is the 25% bonus that the government offers. It means you can get an extra £1,000 a year if you save the top end £4,000. The type of interest gained is also worth taking note of. You’ll earn compound interest due to the monthly bonus being paid. Tie this in with the zero-tax paid on it and you’ll find your money going further.

When it comes to home buying, you could invest the maximum amount all in one lump sum or in monthly payments giving you the ability to control your finances a little easier. You can also transfer from a regular saving account into a Lifetime ISA. If you have £4000 saved, you’ll be getting £1000 for free and be a step closer to the first home.

The rules and limitations of a lifetime ISA

When committing to any type of financial investment there are a variety of rules to adhere to. Those with a Lifetime ISA are relatively straight forward but it would be important to understand them before saving via this method.

  • Can be opened by any British resident or crown servant aged 18-39
  • A maximum annual investment of £4000
  • You can open 1 per year but pay into no more than 1 at a time
  • Government bonus only paid on one lifetime ISA
  • First payment must be made before 40th birthday
  • No deposits or bonuses after 50th birthday
  • Bonus of 25% capped at £1000 per year
  • A 25% withdrawal fee for funds withdrawn not used for first house purchase, retirement or terminal illness
  • House purchase must not be a buy-to-let property
  • House purchase value must not exceed £450,000
  • Must be used with a mortgage and not to buy a house outright
  • Retirement funds can only be accessed once you reach 60 years old

How to use a Lifetime Isa

A Lifetime Isa is to be used ideally as a long-term investment; however, it doesn’t need to be. Suggestions are that at least five years is needed to get good results from your ISA but as long you never exceed any of the rules, you can save for as long as you need to. Although once you have reached 50, no further government bonuses will be paid, or deposits allowed. Interest will still be gained though on the amount held.