The Martin Lewis podcast

LISA or Help To Buy ISA? Martin Lewis explains what first-time buyers need to know

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In our new series, There’s A Podcast For That, we dig into the podcast archives to find the best answers for some of life’s biggest questions. This week, we share the best podcast episode for anyone who’s trying to get their head around LISAs and Help To Buy ISAs

There’s a valid reason why we’ve been tarnished with the Generation Rent label. It’s a minefield out there for first-time buyers. Even before Covid-19 was a word, the housing and renting crises meant that so many millennials were unable to get on the property ladder. And with the pandemic only compounding everything, renters looking to buy a first-time home are perhaps more apprehensive and confused than ever.

That’s why we’re looking at the Ask Martin Lewis Podcast this week, as part of our There’s A Podcast For That series. 

Ask Martin Lewis Podcast: LISA v Help To Buy

Martin Lewis, the founder of Money Saving Expert, used his podcast to explain everything first-time buyers need to know about LISAs and Help To Buy ISAs. “There is a number of urgent deadlines you need to consider right now,” he tells listeners before getting into the nitty gritty.

These are the main points you might want to take note of…

What is a LISA?

“A Lifetime ISA – a LISA – is a tax-free savings vehicle that you can open when you’re aged between 18 and 40,” Lewis explains. “Once it’s open, it can stay open. It’s designed to be used for one or two things: primarily, the one that I suggest it’s best for, is for first-time buyers saving towards a house. Because for every pound that you put in there you get a 25p bonus. You can save a maximum of £4,000 a year in it. If you did that you’d get a bonus of a £1,000 that can be used towards your first property. 

“It can also be used for retirement towards 60, but for most people a pension is better, so I’m less strong on that.”

He adds: “You can use it on a property valued up to £450,000… You can have one even if your partner’s bought before, as long as you’ve never owned a property… If you’re buying with someone else and they’ve own, that’s fine – you can still use this. If neither of you have owned, you can use one each.”

Why is a LISA important to consider right now?

Lewis shares three reasons for why LISAs are so “pertinent” right now: “You can put £4,000 in per tax year – the tax year ends on 5 April. If you haven’t maxed it out and you can afford to max it out, do so. 

“The second reason… Normally you get a 25% bonus paid on money you put in, but if you take the money out for anything other than buying a qualifying house or retirement, there is a 25% penalty. Effectively what that means is that you lost just over 6% of your money. 

“Due to Covid this year, to enable people to take money out of LISAs if they needed it, that penalty effectively has gone. So if you want to take money out this year, there’s no penalty to pay. You get back roughly what you put in plus any interest you’ve earned. You have until 5 April if you need to withdraw money from your LISA to do it penalty-free.” 

Lewis continues with his final tip: “It applies to anybody who’s a first-time buyer in this country, or even if you’re not thinking about buying a house right now but you might do one day. This is crucial. To get the bonus on a Lifetime ISA for buying a property, you need to have had the LISA open for one year. So if you try to use it after three-quarters of a year you will not get the bonus…

“Everybody who is eligible should put £1 in a Lifetime ISA, because then the clock is ticking towards that year.”

Piles of money leading to a house
Martin Lewis has shared advice about LISAs and Help To Buy ISAs for first-time- buyers.

Can I have a LISA and a Help To Buy ISA?

Lewis explains that the Help To Buy ISA is closed to new applicants. When a caller asks if her adult children can open and use a LISA if they already have the Help To Buy ISA, he replies: “Yes. But you can’t get the bonus as a first-time buyer on both. You will only be able to get the bonus on either the Help To Buy ISA – which also offers a 25% boost – or the LISA.”

Is a LISA better than a Help To Buy ISA?

Lewis admits that choosing to choose between using a LISA or Help To Buy ISA is tricky. He explains that the Help To Buy ISA is more flexible but you can only buy a property up to the value of £250,000 (unless you’re buying in London, where the maximum value is £450,000. The LISA’s big advantage is that you can put more money in and you can buy a bigger property up to £450,000.

He says: “With a Help To Buy ISA, you can put less money in. So therefore you might think a Lifetime ISA is better… You can transfer up to £4,000 per tax year from the Help To Buy ISA, so they could move £4,000 now and they could move another £4,000 on 6 April…”

Lewis adds: “The problem in doing that is twofold: one, if they were going to buy within the next year with the Lifetime ISA, they wouldn’t be able to use it if they haven’t had one open. So they might want to open one with £1 [now] just in case they do want to use it. Two, if they don’t buy a qualifying house, after 6 April they will pay a penalty to withdraw money from the LISA, but they can withdraw money from the Help To Buy ISA without paying a penalty.”

Lewis continues to answer more questions about the pros and cons of the different ISAs, which is essential listening for anyone who’s thinking about buying a first home. 

You can listen to the full podcast episode on the Ask Martin Lewis Podcast via BBC Sounds. You can also find more information on LISAs and Help To Buy ISAs on the Money Saving Expert website.

Speak to a Financial Conduct Authority registered financial adviser before taking financial advice, and think carefully before making any decision.

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Images: Getty, BBC Sounds

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Hollie Richardson

Hollie is a digital writer at Stylist.co.uk, mainly covering the daily news on women’s issues, politics, celebrities and entertainment. She also keeps an ear out for the best podcast episodes to share with readers. Oh, and don’t even get her started on Outlander…