Help to Buy vs Lifetime ISA

Help to Buy ISA vs Lifetime ISA

Buying your first home is an exciting moment in life, but saving for a deposit can feel very overwhelming. To make the process easier, the government has introduced schemes designed to support first-time buyers in funding their property purchase.

If you’re saving up for your first house, you may be wondering about the best ways to save. Help to Buy ISAs are now closed to new applicants, while they haven’t been directly replaced, the Lifetime ISA is a similar government-backed savings product that also offers a 25% bonus towards your first home.

Sometimes Lifetime ISAs are referred to as “Help to Buy ISAs,” which can be confusing, but they are different products.

If you already have a Help to Buy ISA, you can transfer it to a Lifetime ISA. Both accounts offer a 25% government bonus on your savings, but with a Lifetime ISA, the bonus can be applied directly towards your mortgage deposit, making it potentially more useful.

Read on to find out how the two products differ and whether transferring your Help to Buy ISA to a Lifetime ISA is the right option for you.

Help to Buy ISA

A Help to Buy ISA is a deposit scheme used to help towards a deposit on a home worth up to £250,000 (or £450,000 in London). You can save a maximum of £12,000, and once you save this money and put it towards a house, your solicitor can claim the 25% Government Bonus (up to £3,000). If you save over £12,000, the maximum Government Bonus is capped at £3,000.

You can’t open a new Help to Buy ISA anymore, but if you already have one, you can keep saving into it until 30 November 2029 and claim your bonus until November 2030.

Here are some more important points to consider for the Help to Buy ISA

• You can pay in a maximum of £200 per month (£2,400 per year).
• The Government Bonus is claimed between exchange and completion and this will be handled by your solicitor.
• The bonus is paid on top of your savings, but it cannot be used for your initial deposit or solicitor’s fees.
• If you withdraw for reasons other than buying your first home, you won’t get the bonus, but there are no government penalties.
• You must apply for the 25% Government Bonus by November 2030.

Please note that the Help to Buy ISA is no longer available to new customers. You can still use it if you already have one, but if not, then you may want to look at a Lifetime ISA* instead. 

Lifetime ISA

A Lifetime ISA is a savings scheme that allows you to save up to £4,000 per financial year (April-April) towards your first home or later life. You will also receive a 25% Government Bonus on every contribution you make towards your first home and/or your later life, plus interest from some providers. Here at Unity Mutual, we offer a 4% interest rate to help you save.

Any UK resident between the ages of 18-39 can open a LISA, and money can be paid into it until you reach 50 years old. However, you must not have previously owned a property if you want to use any of the balance towards your first house. Furthermore, you must have had a LISA for 12 months before you use the money towards a house purchase. 

Here are some important points to consider for a Lifetime ISA:

• The money saved can be used towards the deposit on your first home. Unlike a Help to Buy ISA, the 25% Government Bonus can be used directly towards your deposit.
• The bonus is paid into your account shortly after each contribution. Interest is added annually or at the point a claim is made.
• If you withdraw money for any reason other than buying your first home, a 25% government charge applies, which may reduce your original savings.
• If you have both a LISA and a Help to Buy ISA, you can only claim the Government Bonus on one account. You cannot use both bonuses towards buying your first home.

Help to Buy ISA VS Lifetime ISA

If you’re saving up towards your first home, you may be wondering which ISA is best for you. 

If you’d like to save up for a house over £250,000, you may want to consider a LISA. If you already have a Help to Buy ISA and want to switch over to a LISA, you have the option of transferring up to £4,000 per tax year to your new LISA (minus any other contributions you’ve made into your LISA). 

You’ll still be entitled to the Government Bonus and Interest on the funds you transfer, and unlike the Help to Buy ISA, the bonus will be added the following month, so you should have an easier time tracking where you’re up to.

Here's a breakdown of some of the key differences between the Help to Buy ISA vs the Lifetime ISA:

Should I Move My Help to Buy ISA into a Lifetime ISA?

If you opened a Help to Buy ISA before the scheme closed to new applicants in November 2019, you might be wondering whether transferring it into a Lifetime ISA (LISA) is a smart move. Both accounts are designed to help first-time buyers save for a home, but some differences could affect your decision.

A Lifetime ISA can offer more flexibility (e.g. being able to save for later life) and a higher potential bonus. You can save up to £4,000 per tax year, earning a 25% government bonus (up to £1,000 annually), compared to the Help to Buy ISA’s £200 monthly cap and lower maximum bonus of £3,000.

The LISA also allows you to use the savings either to buy your first home or for later life, 

However, there are a few points to consider before making the switch:

Property Price Limit

The Lifetime ISA can be used to buy a property worth up to £450,000 anywhere in the UK, while the Help to Buy ISA is limited to £250,000 outside London (or £450,000 within London). If you’re buying outside the capital, the LISA’s higher limit could be a major advantage.

Withdrawal Rules

If you withdraw money from your Lifetime ISA for any reason other than a first home purchase or after turning 60, you’ll face a 25% withdrawal charge (which is paid back to HMRC), which means you could lose some of your own savings.

Timing

You must have opened your Lifetime ISA at least 12 months before using it to buy a home. If you’re planning to purchase soon, keeping your Help to Buy ISA might be more practical.

Transfer process

You can transfer your Help to Buy ISA savings into a Lifetime ISA, but only up to the LISA’s annual £4,000 contribution limit, and it will count toward that year’s allowance.

Ultimately, whether you should move your Help to Buy ISA into a Lifetime ISA depends on your timeline for buying, property value, financial goals and individual circumstances. If you’re early in your saving journey and want a larger government bonus or more flexibility, transferring to a Lifetime ISA could be beneficial. 

However, if you’re close to buying your first home, sticking with your Help to Buy ISA may make more sense** to avoid delays or penalties. 

**If you're unsure whether a product is right for you, it's worth speaking to an Independent Financial Advisor (IFA).  You can find a local advisor at unbiased.co.uk.

Where Can I Get a Lifetime ISA?

If you’re interested in opening an account with us, you can open a Lifetime ISA with Unity Mutual or transfer your existing Help to Buy ISA to a Lifetime ISA.

Unity Mutual cannot give you advice; we can only give you factual information.

If you’d like to speak to a financial advisor, visit unbiased.co.uk. 

*Terms and Conditions apply