An expert said it was worth £83 a month
One of the hardest things for many aspiring buyers is building a big enough deposit to get that all-important first step on the ladder. Once the rent, bills and various other outgoings have been paid, there’s often not much left for would-be buyers to squirrel away for their deposit.
To make matters worse, Patricia Ogunfeibo, founder and non-practising solicitor at tenant2owner, a free resource for first-time buyers, says many people are unaware that they can get just over £83 a month for free from the Government via HMRC through the lifetime ISA, or LISA.
She said: “I’m still shocked by how many aspiring buyers are simply unaware that the Government will contribute to their deposit through the LISA. There’s free money available and far too often it’s just not being taken.
“In a recent survey commissioned by HMRC, 37% of people who were eligible for a LISA had never heard of it. In other words, nearly four in 10 people who could open one didn’t even know it existed and that’s really worrying. It also suggests the Government has failed to do enough to promote this valuable way to save.”
Through the Lifetime ISA, first-time buyers can save up to £4,000 a year for a deposit and, for every £4 that they save through it, the Government adds £1.
“The impact this top-up can have on people’s ability to buy should not be underestimated,” said Patricia. She continued: “For many people, it will significantly increase what they are putting aside each month, and that can get them to their target deposit far sooner. Which means they get the keys to their first home far sooner.
“Effectively, the government is giving people up to £1,000 in free money each year towards their deposit and yet many just aren’t aware that this support is available. Only last week I was speaking to another first-time buyer who had no idea it existed. And even if people have heard of it, they often don’t understand how to take one out or the way it works. There’s a lot of confusion.”
People, Patricia said, could invest in a LISA either as an interest-bearing cash LISA or a stocks and shares LISA, where their money is invested. Funds can be used by first-time buyers tax-free to buy a first home up to £450,000.
The LISA is open to UK residents aged 18 to 39, who can contribute up to £4,000 per tax year until age 50. A person can set up multiple LISAs, but only pay into one each tax year.
People also need to be wary of the fact that a 25% penalty applies if funds are withdrawn other than by someone who is over 60, or to buy a first home, essentially removing the tax-free bonus.
Patricia said: “Many people turn to their parents, grandparents and even friends when trying to grow their deposit, but the one friend many aren’t turning to is the one called LISA.
“LISA can be a massive help for those first-time buyers who may not qualify for a 100% loan-to-value mortgage or who are uncomfortable about getting one due to fears of negative equity.”
