How Lisa (that’s an Isa with a twist) can help you buy your first home
What is this new savings vehicle called Lisa?
IT is a version of the popular Individual Savings Account but with a twist designed to appeal to wannabe first-time home buyers. Savers will be able to make annual contributions up to £4,000 which will then be topped up with a generous 25 per cent bonus from the Government. So for every £1,000 invested or saved, the Government will provide a £250 top-up. The bonus will be paid annually in the first year but monthly thereafter.
Anyone between the ages of 18 and 39 can take out a Lisa. The maximum Government bonus is £32,000, payable if someone makes the maximum annual contributions from age 18 to the cut-off age of 50. But given Lisa is aimed at helping people buy their first home, few will receive this amount of bonus.
How does this help me buy a first home?
THE Government is hoping that with the top-up bonus on offer, Lisa will encourage more people to accumulate sufficiently big cash pots to use as a home deposit. The rules allow homebuyers to use the proceeds from Lisa to put down a deposit on a home valued up to £ 450,000. Money can be accessed on the plan’s first anniversary.
What if I don’t end up using the Lisa to buy a home?
THAT is fine. The Lisa then doubles up as a quasi-pension. Contributions will continue to attract the 25 per cent bonus until age 50 with penalty-free and tax-free access from age 60. But no one should take out a Lisa unless they plan to use it as a home deposit builder. A traditional pension is a better provider of retirement income because contributions receive tax relief – while employers are now duty bound to top up contributions.
Can I take cash from my Lisa to meet a financial emergency?
YES, but there will be a price to pay. Any withdrawal made after April 2018 other than for the purposes of funding a first-time home purchase – or post age 60 or in the case of terminal illness – will attract a 25 per cent penalty.
I thought the Government already had an Isa targeted at first-time buyers in the shape of the Help-to-Buy Isa? Will this disappear to make way for Lisa?
NO. Savers will be able to open new Help- t o- Buy I sas until November 2019 although Lisa will be a better proposition. This is because the maximum Government bonus available under the Help-to-Buy Isa is restricted to £3,000 (on a contribution of £12,000). Also, the maximum contribution is more proscriptive, £200 per month after a maximum initial payment of £1,200.
Although the Help-to-Buy Isa rules allow first-time buyers to use the proceeds to purchase homes up to the value of £450,000 (as with Lisa), this is only in London. Anywhere else, the maximum house purchase price is capped at £250,000.
Also, under the Lisa rules, all the plan proceeds including the bonuses can be used to fund a home deposit. This is not the case with Help-to-Buy because the bonus is only paid after completion on a house purchase.
The Government has acknowledged that Lisa is a better vehicle by allowing Help-to-Buy Isa savers to transfer their accumulated funds into the new vehicle. The transfer of the plan’s value on Wednesday will not count towards the £4,000 annual Lisa allowance but will be eligible for the 25 per cent Government bonus.
So, where can I go to take out a Lisa?
AT the moment, Lisa providers are thin on the ground. Hargreaves Lansdown and The Share Centre are up and ready while others such as Nutmeg and Skipton Building Society are poised to launch accounts. It may pay aspiring home buyers to wait for more providers to surface before plumping for a specific plan.