New ISA rewards first-time buyers

The Chancellor's latest Budget didn't contain many property shocks but first-time buyers do have a new rewarding way to save for a deposit.

George Osborne revealed details of the Lifetime ISA - a savings scheme that rewards with cash. This new ISA will launch in April 2017 and the Government will add £1 for every £4 saved by the ISA owner. To qualify, savers must be under 40 when they open the ISA. The maximum that can be saved each year in a Lifetime ISA will be £4,000, earning the saver a £1,000 cash bonus annually if the full amount is saved. The Government's contribution is designed to get first-time buyers to their deposit goal more quickly. Once they have found a property to buy, they can withdraw the cash to put down as a deposit.

Simon Woodcock, the Managing Director of Robinson Michael & Jackson, says any initiative designed to help first-time buyers is welcome and he urges people to sign up when they are young to benefit from the maximum amount of Government 'top ups': "The Lifetime ISA is similar to the Help to Buy ISA but, importantly, the rewards with the Lifetime ISA are more generous. If a Lifetime ISA is opened by an 18 year old and the maximum amount is paid in every year until they are 50, the holder would earn £32,000 in Government bonus cash alone. This is a great reward considering savings rates on bank accounts are so low - with the interest rate held at 0.5% in March."

Currently savers with a Help to Buy ISA can only earn a maximum of £850 in bonus cash in one year, versus £1,000 with a Lifetime ISA. The good news is those with Help to Buy ISA can switch to the Lifetime ISA as soon the products are launched. The Lifetime ISA will also be available in two formats: cash or stocks and shares, whereas the Help to Buy ISA is solely a cash option.

The new ISA is actually dual purpose. Under 40s who already own a property can still open a Lifetime ISA but with the objective of saving for their retirement. The annual Government bonuses will still be paid - until the ISA holder is 50 - and the money can be withdrawn penalty free when the saver turns 60.

There are some restrictions to bear in mind. The deposit funded by Lifetime ISA savings must be your first home; you must save for 12 months before you can use any savings for a deposit and the value of the property bought needs to be less than £450,000. It will be possible to make withdrawals from Lifetime ISAs outside of the two specified milestones - which are a deposit and at 60 - but this will come with a 5% charge and a loss of bonuses, unless the saver is suffering from a terminal illness.

If you are a first-time buyer and would like more information about Lifetime ISAs, Help to Buy or general mortgage advice, contact one of our branches. They will also be able to show you a great selection of starter homes.

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