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Help to Buy ISAs closing – options for first time buyers

The Help to Buy ISA closes to new applicants from November 30. Henry Irving explains an alternative which is proving popular with many first time home buyers.

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.

It’s tough. Getting one foot on the housing ladder has seemed a Herculean task for many first time buyers in the UK. Those looking to get their first place are putting down an average deposit of £32,841, while in London it’s over £110,000. And that’s why, in recent years, the government has introduced various initiatives to ease this burden.

One such scheme was the Help to Buy ISA (H2B ISA) which was launched in December 2015. But from November 30, H2B ISAs will close to new applicants, leaving the Lifetime ISA (LISA) as the only choice for individuals looking for help to buy their first property.

If you’re weighing up whether to open a H2B ISA before the deadline or simply plump for a LISA, we explain some key differences below to help you make this decision easier.

This article is not personal advice. If you are unsure, please seek advice. Tax rules can change, and benefits depend on your circumstances.

Discover more about LISAs

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

On the face of it, the H2B ISA and LISA might seem very similar. They 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 H2B 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 a home worth £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 markets gives you the chance to make more money than cash alone. But it also carries more risk. 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.

    Discover more about LISAs

  3. LISA gives greater flexibility

    After a first lump sum payment of £1,200, you can only save monthly into the H2B 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 H2B 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 your buying first home without the government charge being applied. Neither of these conditions apply to the H2B ISA.

    Discover more about LISAs

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)

I’ve got a H2B ISA – what are my options?

If you’re happy with your existing H2B ISA, there’s nothing you need to do. You can simply continue contributing to your H2B ISA until 30 November 2029, and you have until 1 December 2030 to claim the government bonus.

However, with the H2B 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.

Alternatively, you can choose to transfer your H2B 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.

More on the HL LISA and charges

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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