This article was written by a member of the Debut Contributor Network. Olivia Church explains Lifetime ISAs and how they can help you get on the property ladder.
The subject of housing will surely come at some point for us all, regardless of whether we are still at uni or have left only recently. With the UK’s ever-growing population and house prices constantly on the increase, young people in general face the challenging task of getting their feet on to the property ladder. Sometimes it seems the most important lessons you learn at university aren’t always learnt in a lecture theatre – and financial preparation is one of them.
We cannot always foresee how the current economic climate will affect us until we are in the thick of it. It might make some students and worried family members feel as though we should have seen this coming. There is, however, always the chance to work with what we have but that shouldn’t stop us from seeking more financial backing. I am no financial expert, but I know someone who is.
Martin Lewis, the founder and chair of moneysavingexpert.com, has recently released information that could be vital for many first-time buyers. He is very much fighting our corner when it comes to financial justice and reassured many potential students and parents that they can afford to go university when tuition fees rose to £9,000 a year in 2012.
He is appealing to young people to open what’s known as a LISA or a Lifetime Individual Savings Account as soon as possible. It means you can gain tax-free interest on the money that is already in the account and will be on stand-by for your first property purchase. Apparently, you’d be silly not to do it so I will try to explain the essentials as clearly as possible.
What is a Lifetime ISA and who are they for?
Lewis has advised that young people who currently live in the UK should start a Lifetime Individual Savings account if they have never owned a property previously. While some open an account when they are nearing retirement, this saving initiative is directed also to young people who want to buy their first property so that it can contribute towards a deposit.
What makes them so good?
As mentioned previously, the reason they are so good is because young people who are 18 and over can basically get tax-free cash on top of the savings already in the account. You can choose to invest annually up to £4,000 worth of cash savings or the money you either lose or gain through stocks and shares. You get a 25% bonus each tax year on top of your contributions already in the account so as soon as it’s opened, you’ll get interest.
Doesn’t that mean I can’t touch the money?
Don’t worry, you can touch the money if you need to. While it is arguably less flexible than the Help to Buy ISA, if you desperately need to withdraw it then you can absolutely do so. You can even and change which provider you are with if you wish. You must be aware, however, that you can take it out if you are not buying a property and you haven’t hit 60 years old. There is no penalty if you take it out in the first year but you won’t have the bonus at the end of the financial year which runs from 1st April to 31st March each year so it would be better to leave the money aside for the sole purpose of buying your first property.
I plan on getting a house with someone, how does this work?
As long as the house is under £450,000 you can contribute what you have saved with your LISA towards a house. There may be two or more of you but each individual person owns their own LISA. Even if the other person has owned a place before, a first-time buyer can use their LISA savings towards the property. If there are two of you and you both have your own LISA’s that have been open for at least 12 months, then that’s an even bigger saving!
Which provider would you recommend?
Personally, I have opened an account with Skipton Building Society because they have a better interest rate than other companies and not all banks offer the chance to open a LISA. As much as I like living with my parents, the sense of independence that university has given me will mean that we’ll all one day agree that I will have to eventually fly the nest. There is a catch with Skipton Building Society that you must be aware of. Skipton’s offer is only available for a certain period of time. They ask that should you choose to open an LISA with them that you do so by 1st March, so it counts during 2017-2018 tax year.
The main point that I would say a LISA introduces is that it can instil young people with the confidence to invest in their future safely and securely when the tides of the British economy shift constantly. You can find more information about Lifetime ISA’s here and more specific information on Skipton Building Society here.