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Help to Buy ISAs closed – but don’t panic

The Help to Buy ISA closed to new applicants on Saturday 30 November. But there’s another – arguably better – way that first-time buyers can save.

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

The Help to Buy ISA closed to new applicants on 30 November – last Saturday. It offered a good way to help first time buyers onto the property ladder with a 25% boost from the government on contributions. The obvious question: if it was so good, why has it closed?

One of the main reasons is that it’s been replaced by an arguably better alternative called the Lifetime ISA which was launched in April 2017. So, if you’ve already got a Help to Buy ISA or you’re a first time buyer looking to understand how these accounts differ, take a look at our explanation below.

This article is not personal advice. If you’re not sure, please ask for advice. Tax rules can change and benefits depend on your individual circumstances.

What is a Lifetime ISA?

A Lifetime ISA offers an excellent way to save towards your first home. If you’re aged between 18 and 39, you can:

  • Open and contribute up to £4,000
  • Get a 25% bonus from the government worth up to £1,000 a year until your 50th birthday
  • After the account has been open for 12 months , you can use the money towards a first home worth up to £450,000. Other withdrawals will normally be subject to a 25% penalty
  • Choose to save as cash or invest in the stock market

Find out more about LISAs

Help to Buy ISAs vs. Lifetime ISAs – what are the main differences?

If you’ve opened a Help to Buy ISA, there are a few reasons you might want to consider transferring to a Lifetime ISA. They provide a number of similarities. For example, both offer a 25% government top up towards your first home. But there are some key differences.

1. LISA gets a bigger bonus

With the LISA, you can add up to £4,000 each tax year until your 50th birthday. That’s up to £1,000 in bonuses every year whilst you can contribute. The Help to Buy ISA, on the other hand, has lower maximum contributions meaning you can only receive a bonus of up to £3,000 in total.

2. LISA offers more choice

You can use the Help to Buy ISA to buy a home worth up to £250,000 (or £450,000 in London). With a LISA, the limit is £450,000, even outside of London.

The LISA also gives you the choice to save as cash or invest in stocks and shares, while Help to Buy ISAs only allow you to save as cash.

Investing in the stock market gives you the chance to make more money than cash alone. But it also carries additional risks. Unlike the security offered by cash, all investments can go down as well as up in value so you could get back less than you put in. It may also take longer to withdraw money compared with holding cash. Investing should be considered for the long term (5 years or more).

Discover more about LISAs

3. LISA gives greater flexibility on paying in

After a first lump sum payment of £1,200, you can only save monthly into the Help to Buy ISA, capped at £200 a month. With the LISA, you can choose to save monthly or in lump sums. As long as you keep within the £4,000 limit, you can save as little or as often as you like.

4. Restrictions

Due to the greater benefits of the LISA over the Help to Buy ISA, there are stricter rules on withdrawing money. If you decide to make a withdrawal from your LISA and it’s not to purchase your first home or after age 60, a 25% government charge will normally apply so you could get back less than you put in.

Also, the LISA must have been open for 12 months before it can be used towards buying your first home without the government charge being applied. Neither of these conditions apply to the Help to Buy ISA.

Lifetime ISA Help to Buy ISA
Who can open the account? 18-39 year olds First time buyers aged 16 and over
How much can you save each year? £4,000 (up to the day before 50th birthday) £2,400 (£3,400 in the first year)
What is the government bonus? Up to £1,000 each tax year until you turn 50 Up to £3,000 in total
What’s the maximum property value allowed? £450,000 £250,000 (£450,000 in London)
When do I receive the bonus? Monthly On completion of buying your first property
How can you save? Monthly and lump sums Monthly only (except initial lump sum of £1,200)

Discover more about LISAs

I’ve got a Help to Buy ISA – what are my options?

If you’re happy with your existing Help to Buy ISA, there’s nothing you need to do. You can simply continue contributing to your Help to Buy ISA until 30 November 2029, and you have until 1 December 2030 to claim the government bonus.

However, with the Help to Buy ISA closing to new applicants, you might find that the rates offered will fall as the market becomes less competitive. This has happened with other financial products which have been withdrawn in the past so it could be sensible to review your account and make sure it continues to meet your needs.

Alternatively, you can choose to transfer your Help to Buy ISA to a LISA. You’ll get all the benefits listed above and you’ll have greater flexibility which might allow you to buy your first home sooner. Before transferring, please check for loss of benefits or excessive exit fees and compare charges.

Discover more about LISAs

Find out more about transferring to a LISA

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

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