I've heard a bit about the Help 2 Buy ISA and know a bit about it. Now

Tagged: 

This topic contains 2 replies, has 3 voices, and was last updated by Holly Mackay Holly Mackay 6 months, 1 week ago.

ISAs
Report this comment
Emily LondonRebellious Renters

I’ve heard a bit about the Help 2 Buy ISA and know a bit about it. Now I’ve heard of the Lifetime ISA and want to know what is the difference? Is one better than the other?

This is not full-fat regulated capital 'A' advice - that costs.And you need to see a financial adviser for that. But hopefully this is some useful food for thought.
Report this comment

Hi Emily, although the Help 2 Buy ISA and the Lifetime ISA seem very similar, they do have some fundamental differences, as follows:
1. The H2B ISA has already launched while the Lifetime ISA doesn’t launch until April 2017.
2. The H2B ISA is to help first-time buyers save for a deposit for their home. The Lifetime ISA is to help the under40’s save for their first home or retirement.
3. The H2B ISA has a maximum bonus from the government of £3,000 while the Lifetime ISA can receive a maximum bonus of £1,000 per annum from the age of 18 to 50 i.e. £32,000 in total.
4. The maximum amount you can invest in a H2B ISA is £200 per month plus a £1,000 on account opening with a maximum total contribution of £12,000. The Lifetime ISA has a maximum of £4,000 per annum up to the age of 50, so a maximum of £128,000.

I hope the above helps you understand the differences and your question of which one is better, very much depends on your personal circumstances. You will need to consider how much can afford to save, how long you’re looking to invest for and how quickly you want to access your savings.

Report this comment
Holly Mackay

Emily Hi, Holly here with a little more information on the H2B….

Help-to-buy ISAs (H2B ISAs) are part of the Government’s initiative to help first time buyers onto the property ladder. Sadly, it doesn’t do anything to make homes any cheaper, but it can turbo charge your deposit. A bit.

H2B ISAs are available from most high street banks and the rates are quite attractive (in the context of generally rubbish savings rates). Savings Champion (http://www.savingschampion.uk) shows that Barclays, Nationwide, Halifax and Virgin Money are all paying 2% or higher on their H2B accounts although do read the small print. More importantly, you get a bonus from the Government on top of whatever you save – you receive a 25% top up on amounts saved between £1,600 and £12,000.

As we know, the Government isn’t keen to give away money willy-nilly, so there are limitations. To qualify, you need to be over 16 and have a National Insurance number. The money must go towards your first home (worth up to £250,000 anywhere in the UK, or up to £450,000 inside London), and you can’t have owned property before. Everything has to be in your name, so no bank of Mum and Dad involved.

On the face of it, there’s no real reason not to do it if you’re looking at saving in cash for a first home. That said, just to put a spanner in the works, if you’re under 40, it may also be worth considering the Government’s new Lifetime ISA scheme which will be available from April next year. This has a bit more flexibility in case you don’t decide to buy a home – it can be used for retirement income as well.

I think the Lifetime ISA will have a few advantages over the H2B ISA. First, you can invest it where you like, rather than just being restricted to cash. You can put a bit more in – up to £4000 a year, and you still get the Government bonus of 25%. This means you can invest in – potentially – higher growth assets, such as shares (though they do carry greater risk of capital loss and are particularly risky if you’re thinking about this over a 2-3 year timeframe, say). Also, with H2B ISAs, the bonus is paid at the end. With Lifetime ISAs, it’s just been confirmed that bonuses are paid annually for the first year, and then monthly from April 2018. As such, the bonus is available for exchange of contracts, not completion as it is with a H2B. This is attractive.

Making the LISA values plus bonus available at exchange of contracts will help first time buyers’ cash flow – you need to take into account the timetable for the first annual bonus in your planning or you could risk a shortfall at exactly the wrong time.

Danny Cox from Hargreaves Lansdown has said,“We expect considerable interest from the 500,000 or so Help 2 Buy ISA holders, looking to transfer their values across to LISA in 2017/18. This will give them wider choice, the benefit of stocks and shares options, higher subscription levels and bonuses paid sooner.”

That’s quite an endorsement. We might not go that far – there is definitely still a place for H2B, but make sure you consider all the options.

We have more info on Help to Buy ISAs here www.boringmoney.co.uk/tribes/rebellious-renters/

And Lifetime ISAs here www.boringmoney.co.uk/isas/lifetime-isa/

Good luck!

Comment

Malcolm is a super wise Owl! He joined EY as an Executive Director in 2003 and has done over 100 client engagements involving business strategy, operating model design and commercial due diligence. His clients…full bio

Expertise: Retirement, Insurance
Rebellious Renters