I have my £12,000 in my cash Lifetime Isa that I’ve saved up and paid in, plus the 25 per cent Government bonus. I have found a house and want to buy it and put my deposit down.
How do I go about turning that cash into my house deposit, and how much time does it take and who do I speak to?
Saving up in the Lifetime Isa and taking advantage of the Government bonus is the main step, but there are a couple of rules to be aware of when using it to buy your house
George Nixon, This is Money, replies: The Lifetime Isa has been around since April 2017, but still remains something of an under-utilised product.
However, for first-time buyers looking to get on the housing ladder, saving into one of these is close to being a no brainer.
This is because the Government will top up 25 per cent on up to £4,000 a year you can save into the Lifetime Isa, meaning you can get £1,000 a year in free money towards your potential home.
However, you can only open a Lifetime Isa if you are under 40 – and if you withdraw the money from the Isa for any reason other than buying your first home or for retirement after the age of 60, you’re hit with a steep 25 per cent penalty.
Both cash saving and stocks and shares investment options are available, but there still remain only a limited number of providers – and only three, Skipton, Nottingham and Newcastle building societies, offer cash versions.
Nonetheless, there is a suggestion that the product is starting to cut through.
Nottingham Building Society reported recently that seven times as many first-time buyers opted for the Lifetime Isa than its Help to Buy forerunner in the first three months in 2019.
Meanwhile, in the first six months of 2019 Skipton Building Society says more than 4,000 houses were bought using the Lisa – an increase on the 3,641 bought using it the year before.
Alex Beavis, head of mortgage products at Skipton, said that as the product becomes more popular, ‘it’s increasingly important to encourage greater understanding of the different stages of the home-buying process and the timings to stick to.’
Home buying with a Lisa in six simple steps
Step 1: check the home you want to buy does not exceed £450,000 and your first payment into your LISA was at least 12 months ago
Step 2: obtain a Decision in Principle from a lender so that you know you’ll be able to secure a mortgage
Step 3: put an offer in and once accepted, choose a mortgage provider and begin to complete your mortgage application
Step 4: while you are progressing your mortgage application, appoint a conveyancer and let them know that you’re going to be using your LISA to fund the deposit
Step 5: complete the ‘Investor Declaration Form’ and ask your conveyancer to complete the ‘Conveyancer Declaration Form’
Step 6: submit both forms via your conveyancer to your LISA provider at least 30 days before completion
There are also a number of rules to be aware of, and for first-time buyers with no experience of the property market there could be some confusion.
Most notably, first-time buyers never get hold of the Lifetime Isa cash during the buying process, it is paid through a third-party.
Additionally, there is a 12-month minimum saving period between opening the Lifetime Isa and using it to buy a home, and the property you’re buying needs to cost no more than £450,000.
If you miss either of these conditions, Alex says, ‘you’ll be faced with a Government withdrawal charge.’
‘The same rules apply if you’ve transferred in from a Help to Buy ISA. Even if you had your Help to Buy account open for over a year, you’ll still need to wait another 12 months after the transfer date to use the funds for a cash deposit.’
When it comes to the home-buying process itself, first-time buyers firstly need to know what they can afford to borrow and how big a deposit they need.
This is Money offers a mortgage finder calculator powered by London and Country to show what sort of deal you could apply for and how much your monthly payments will be.
‘After checking these details’, says Alex, ‘find a mortgage provider, start your mortgage application and appoint a conveyancer.
‘A conveyancer is special type of solicitor and it’s when you enter this phase of the process that it’s time that you start up conversations around using your Lifetime Isa.
‘There are two key people you need to inform in order to release your funds; your conveyancer and your Lifetime Isa provider.’
Alex warns that as the Lifetime Isa is still a relatively new product, your conveyancer might not be overly familiar with how it works.
‘This means you’ll need to be proactive and start these conversations yourself, and early.’
The final thing you need to be aware of is an investor declaration form, which you need to sign.
This is a declaration obtained from your Lifetime Isa provider and submitted through your conveyancer that allows you to make a charge-free withdrawal from your Isa to buy your first home.
The final thing to be aware of is the investor declaration you must sign before your funds can be released to buy your house
This form allows you to make a charge-free withdrawal from your Lifetime Isa. Alex Beavis from Skipton Building Society says it’s important to make sure you leave plenty of time to do this
Alex says it’s important to allow plenty of time and plan ahead, as ‘these processes can sometimes take longer than you expect.
‘Once your Lifetime Isa provider receives the completed forms from your conveyancer, the money will be transferred to them within 30 days, typically a few days prior to your completion date.’
Your completion date is your official moving in day.
How does the Lifetime Isa differ from Help to Buy?
The Help to Buy Isa is supposedly being withdrawn by the Government in November, meaning those thinking about the home-buying process may not need to worry about the differences for too much longer. Nonetheless, there are a few to be aware of.
The Help to Buy Isa allows savers to initially deposit £1,200 and then up to £200 a month, meaning you can save lower amounts than in a Lifetime Isa. You can save a maximum of £3,400 in the first year and £2,400 thereafter, but you need to save a minimum of £1,600 a year in order to get the 25 per cent Government bonus.
The bonuses also work differently. While the Lifetime Isa bonus is paid instantly and thus you can penalised for withdrawals, the Help to Buy Isa 25 per cent bonus is paid on closure, calculated on the closing balance.
According to Jenna McKenzie-Day, senior product manager at Nottingham Building Society, one of the few providers to offer both Isas, the Government bonus can only be used upon completion of the property, not at the exchange of contracts, and must be applied for by your conveyancer.
This means that the Help to Buy Isa cannot be put towards your house deposit in the way the Lifetime Isa can, or any of the other indirect costs associated with buying a home like solicitor or estate agent fees.
If you want to, you can transfer the balance of your Help to Buy Isa into your Lifetime Isa if the amount isn’t more than £4,000. If it’s a cash Lifetime Isa this shouldn’t take longer than 15 business days.
The Lifetime Isa, Shared Ownership and Help to Buy
As well as the Lifetime Isa, the Government also offers other schemes designed to help first-time buyers onto the property ladder.
The most well-known is Help to Buy, where the Government can lend you up to 20 per cent of the price of a new build property outside of London, or 40 per cent in the capital, if you come up with a 5 per cent deposit.
This is an interest-free loan for five years and after that interest is chargeable, it’s important to note the taxpayer effectively takes a stake in your home with this equity loans, so if its value rises, so will the amount need to be repaid.
This can work in conjunction with the Lifetime Isa. Alex says: ‘You can use your LISA in conjunction with Help to Buy. Think of your LISA as a cash deposit contribution. In this instance, you’ll need to be prepared and make sure you appoint the right conveyancer and update your mortgage provider.
‘They’ll be able to provide you with additional information, but the process remains the same.’
The other is shared ownership. This is where you buy between 25 per cent and 75 per cent of a property from a local council. You’re eligible if you’re a first-time buyer and earn £80,000 a year or less as a household.
Following the initial share purchase, you can buy more of your home in a process known as ‘staircasing’.
The Lifetime Isa can be used in conjunction with this scheme, but there is a caveat. According to Alex, ‘If you’re using the Shared Ownership scheme to buy your first home, your Lifetime ISA can be used towards the deposit when you buy your first initial share, but it can’t be used to buy any future shares without paying the government withdrawal charge.
‘The process in this instance is the same as any other first-time buyer looking to turn their Lifetime Isa savings into a deposit.’