First-time buyers’ trick: Max LISA and Help to Buy ISA gains by timing it right

The new Lifetime ISA (LISA) launches next April. It allows eligible savers to put away up to £4,000 a year. Then if it’s used for a first-time home purchase or retirement, the state adds a 25% bonus on top – a possible £1,000 a year bonus for up to 30 years.

While the already up-and-running Help to Buy ISA also adds 25% to first-time mortgage deposits, the LISA boon is it works on much larger amounts.

If you’re a first-time buyer, using these is a no-brainer. However, as these two ISAs have subtly different terms, I’m often asked “which is best?” And I’ve already blogged an answer: Help to Buy ISA v Lifetime ISA – which should you get?

Within that I explain how timing is a crucial part of the decision. Yet recently, while filming the roadshows for my next ITV The Martin Lewis Money Show series, a young woman asked me that question, but she wasn’t sure when she’d be buying. I did some hasty thinking on the spot, and as I suspect many others are in a similar boat, I wanted to bash out my guide for maxing the gain even if you’re ensure when you’ll buy.

Important quick links before you carry on.
1) If you’re new to these products or want the exact rules, read the full Top Help to Buy ISAs guide and Top LISAs guide first – here I’m only focusing on contrasting the differences.
2) If you’re looking at a LISA for retirement savings, instead read my LISA vs Pension analysis.
3) First-time buyers should also get my free First-Time Buyers’ help booklet.

To start here’s my quick summary of the differences between the two ISAs.

Lifetime ISA
Help to Buy ISA
How much can you save? £4,000/yr £2,400/yr (£3,400 in year one)
Can you put lump sums in? Yes No, you need to save monthly
What’s the max bonus? £32,000 (assumes max contribution over 32 years) £3,000
When’s the bonus paid? Annually (thus you get interest on the bonus once it’s paid) When you buy a home (so no interest on the bonus)
Can you invest as well as save? Yes, with cash & shares Lifetime ISAs No. Cash only
What’s the max property price? £450,000 £250,000 (£450k in London)
When can you use it to buy a home? After the ISA has been open 12mths Once youve £1,600+ saved (which can be done in three months)
Who can open it? Anyone aged 18 to 39 Any first-time buyer aged 16+
Can I withdraw money if not buying a home? Yes, at age 60+, if earlier you don’t get the bonus and may pay a penalty (still being consulted on) Yes at any time, you just don’t get bonus

As you can see, if you’re eligible for a LISA, as you can save more in it and use it on properties of a higher value, it usually wins. However, if you’re not certain you’ll ever buy, Help to Buy ISAs win, as if you don’t use it for that, you can still access the cash no problems.

You can convert existing Help to Buy ISAs into a LISA.

The good news is if you’ve got a Help to Buy ISA and want a LISA you can transfer it into one. Here are the rules…

  • You only get the 25% first-time buyers’ bonus on either a Help to Buy ISA or a LISA, not on both.
  • If the bonus is paid on a Help to Buy ISA, you will still be eligible for the LISA bonus on retirement savings.
  • You can transfer a Help to Buy ISA into a LISA until the end of the LISAs first year (so 5 April 2018).
  • If you do transfer a Help to Buy ISA into a LISA, from then on it obeys all the LISA rules.
  • The impact on your LISA allowance of transferring a Help to Buy ISA in depends on when you contributed. All money contributed to a Help to Buy ISA before LISAs launched (ie, before 6 April 2017) can be transferred in without affecting your LISA allowance – and you can get both the max £1,000 LISA bonus, plus the bonus on that Help to Buy ISA cash on top. Any money you contribute to the Help to Buy ISA after LISAs launch however will eat up your LISA allowance.

Timing is everything.

These different factors leave a jigsaw of timing issues – so here are my rules to solve the puzzle…

  • Rule No. 1 – Buying quickly? Go for Help to Buy ISA not LISA. Lifetime ISAs must be held for a year before you can get the bonus towards a home. With a top Help to Buy ISA you only need to have £1,600 in to get a bonus, and that’s just three months of maximum contributions (£1,200 month one, then £200 each month after). So if speed counts, it wins.
  • Rule No. 2 – Planning to buy before April 2018? Go for Help to Buy ISA not LISA. Lifetime ISAs won’t exist until April 2017, and with the ‘it must be open a year’ rule that means if you’re planning to buy before April 2018 it’s a no go, so stick with a top Help to Buy ISA.
  • Rule no. 3 – Unlikely to buy before April 2018? Go for Help to Buy ISA now AND LISA. To maximise your gain on this…
    – Open a top Help to Buy ISA now and save the max in it.
    – In April 2017, if you can save more, also open a LISA and put as much as you can in up to £1,600 (the LISA limit minus £2,400, a years maximum Help to Buy contributions). Yet only do this if you’re sure you will buy a home at some point, if not follow rule 4.
    – In March 2018 (ie, just before the tax year ends) transfer the Help to Buy ISA into the LISA. Don’t do this earlier as then you miss out on being able to put all your contributions into a Help to Buy ISA.
  • Rule no. 4 – Unsure when you’ll buy? Max out a Help to Buy ISA and put £1 in a LISA. Again, there’s a schedule to follow to max this out…
    – Open a top Help to Buy ISA now and save to the max in it.
    – On 6 April 2017 open a LISA with only £1. That way the clock has started on the ‘you must have held it a year’ rule.
    – If you’ve more savings to put away, use normal top savings accounts.
    – Buy before April 2018? Just use the Help to Buy ISA (as you can’t use the LISA until you’ve had it a year). And accept you’ve £1 locked in the LISA (or withdraw it and pay the penalty).
    – In March 2018 (before the tax year ends) if you’re not close to buying, transfer the Help to Buy ISA into the LISA. And also take any money out of normal savings to put in the LISA up to £1,600 (the LISA limit minus £2,400 – a years maximum Help to Buy contributions). This way you’ll have maxed out your contributions for when you buy (if you aren’t convinced you’ll definitely buy at some point, stick with a Help to Buy ISA, it’s safer).

I hope this isn’t too complex. If you think I’ve missed any timing scenarios, do let me know below.