Brian Byrnes, Head of Personal Finance at Moneybox, the largest provider of Lifetime ISAs in the UK, says: “You can save or invest up to £4,000 each tax year and get a 25% government bonus to boost your savings.
“This means for every £4 you save, you get a £1 top up. That’s up to £1000, for free each tax year.”
Created in 2017, the LISA has already helped over 225,000 first-time buyers get on the property ladder—and more 1.5million people are currently using the government backed savings and investing product. Savers get a 25% government boost when they use the funds to buy a qualifying first home.
But, it’s not without its issues. The property price limit of £450,000 has been frozen since the product launched in April 2017. Campaigners including Martin Lewis have been pushing to get this threshold lifted.
How does a LISA work?
You must be aged 18-39 to open an account, but you can keep saving (and earning the bonus) until you’re 50.
You can save up to a maximum of £4,000 per year and receive a 25% government bonus on top.
You can withdraw the money to buy your first home (up to £450,000) or after age 60 for retirement.
But be aware there is a 25% withdrawal penalty if you withdraw for any other reason with the exception of a terminal medical diagnosis, which could mean you end up losing some of your original savings.
Why aspiring young homeowners love the LISA
“The LISA has proven to be invaluable to hundreds of thousands of first-time buyers when it comes to helping them save for that all important deposit, and its popularity continues to rise.” says Brian.
“In the last year alone we’ve seen a 38% increase in new accounts opened with the average age a Moneybox customer opens a LISA having dropped from 29 (in 2017) to 26 years old today.
“The government bonus is a game-changer, giving young savers a crucial boost to build strong saving and investing habits early. Our research shows that saving with a LISA not only improves financial habits but also increases motivation—81% save more frequently, and 84% feel more positive about their financial future. Making this a lifelong habit can help achieve financial goals faster, build financial confidence and long-term financial security.”
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How to make the most of your savings with LISA
1. Make the most of that bonus
The earlier you start, the better.
“If you were to save for the maximum amount of time you could get up to £32,000 for free over the course of your life,” says Brian. “Even starting with £1 gets you in the game, but saving the full £4,000 a year means you’ll earn the £1,000 bonus—a meaningful boost to your deposit or retirement pot.”
Plus if you are looking to buy with someone else and you’re both eligible, you are able to combine two LISAs to get up to £2000 bonus a year between you. This means if you both save the maximum, you could end each tax year with £10,000 saved.
But remember the LISA has to be open for at least a year before you buy.
2. Pick the right type of LISA for you
Understanding the differences and benefits are important; but fortunately it’s not too complicated and there are plenty of resources out there to help you. There are two types to be aware of:
Cash LISA
Works like a savings account, earning interest on the funds held in the account, and the most suitable option if you buy in less than five years. Different providers offer different rates, so it is important to do your homework on this
Stocks & Shares LISA
Rather than earning interest like you do with a Cash LISA, you invest your money in funds. Investing over the long term (5 or more years) can offer higher returns, although it’s important to remember that the value of your investments can go up and down, and you may get back less than you invest.
3. Don’t forget retirement
Many open a LISA with the ambition to buy their first home, but it’s also a powerful retirement savings tool. Once you’re on the property ladder, you can keep contributing until age 50 to continue building up those bonuses every year.