Updated: Aug 22, 2020
If free cash money from the Government in return for saving into your pension isn't enough; you're in luck!
Chances are, most of you are hoping to own your own home one day - not only so you can make use of those interior design skills developed through hours of playing The Sims, but also because it's one of the best investments you'll ever make; letting you save fat stacks on rent and allowing you to grow old knowing you'll always have a sweet-ass pad to come home to. But, buying a house (or a mould infested basement if you're lucky enough to live in London) requires a f@*k tonne of saving. Lucky for you, the Government's got your back!
You’ve probably heard of an ISA (aka an Individual Savings Account), which is basically a tax-free way of saving. There are loads of different types e.g. cash, stocks & shares etc. - and I'll give you the low down on these in a later blog. But for now, I'm going to focus on the ISAs designed to help first time buyers save for a house; because as if the Government haven’t set enough deadlines this year (for those of you living under a rock - I’m talking about Brexit), they’ve also decided to set a deadline for the Help to Buy ISA - so if you want one, you must open it before 30 November 2019 (btw, if you open a Help to Buy ISA, you'll be able to save as normal until 1 December 2030),
The Help to Buy ISA has been very popular amongst those saving for a house, but rumour has it, there’s a new guy in town (the Lifetime ISA*, aka LISA), and so the Government are closing the Help to Buy ISA.
What’s so great about them?
In addition to offering a tax-free way of saving, both of these ISAs also provide a 25% return on your savings, which I’ve helpfully summarised in the chart below for clarity.
So, what's the difference?
You're probably wondering which ISA is better if they both offer 25% returns, so I've laid out the key differences in the table below:
Ultimately, when saving for a house, unless you're either:
Spending a heck load of time analysing what to invest in (or paying someone else to do this for you);
Investing in some risky-ass s*!t; or
Have a magic eight ball that actually works.
You won't be earning anywhere close to 25% returns - so it's definitely worth opening one of these ISAs.
In general, if you're over 18 and are planning on buying a house within the next year, you should open a Help to Buy ISA. If it's going to take you longer than a year to buy a house, you should Owna Lisa (get it!?), since you have the opportunity to earn more free cash and your savings can be used as a dinosaur account if you decide not to buy a house.
If you're unsure which ISA is best for you and you're stressing out about making a decision before 30 November 2019, Martin Lewis of MoneySavingExpert.com suggests opening both, putting £1 in each, and taking your time to make a decision - after all, a house is probably the largest purchase you’ll ever make.
Personally, the only problem I have with both ISAs is that the house you can buy must be less than £450k, which basically limits you to a tiny studio flat where I live in London - although if you live elsewhere in the UK, I don't think this would be an issue. There have been discussions around increasing this limit, but I wouldn't bank on it.
*Note, Lifetime ISAs are also useful for those wishing to save for retirement (usually once you’ve maxed out the matching contributions from your employer - but I’ll cover this in a later blog).
Shout out to Jade who suggested this blog topic - if you have any suggestions, please hit me up!
Now for the serious part: my blogs are for educational purposes only; they do not constitute financial advice. Please consult with an independent financial advisor for advice on your specific circumstances.