• From 30 November no-one can open a new Help to Buy ISA
• Bonuses can still be claimed until 1 December 2030
• Government should use this chance to simplify the ISA market
Laura Suter, personal finance analyst at investment platform AJ Bell, comments:
“The clock is ticking, as anyone who wants to open a Help to Buy ISA and has been putting it off, now only has a month to do so. After 30 November no-one can open a new account as the Government phases the Help to Buy ISA out.
“If you’ve already got a Help to Buy ISA open you don’t need to panic, you can keep paying into it and have more than a decade until you need to claim your bonus – the deadline is 1 December 2030. Alternatively you can switch your money to a Lifetime ISA, where you have the ability to save more each year and so benefit from a bigger potential Government bonus.
“Whilst there are a good number of stocks and shares Lifetime ISAs available, the number of companies offering the cash Lifetime ISA has been slow to take off, with only four providers. The best rate pays 1.4%, which is close to the top rate easy-access savings account and means if you pay in the full £4,000, a year later you’d have £5,070 with the Government bonus – a decent boost to your house deposit. The Help to Buy ISA market is still far bigger, with 26 providers. Hopefully once the Help to Buy ISA is consigned to history more banks and building societies will offer the Lifetime ISA.
“However, the Government still needs to tackle the unnecessary complications in the ISA market. At the very least it should sort out the Lifetime ISA exit penalty and age restrictions, but ultimately a simplification of the entire ISA market would resolve the need for this unnecessary tinkering around the edges and create a market that’s easier for savers to understand and use.”
See our guide to whether the Help to Buy ISA or Lifetime ISA is right for you:
Which gives more free money? Both the Help to Buy ISA and Lifetime ISA get the same 25% Government bonus, but with the Help to Buy ISA this is limited to the first £12,000 saved – meaning a maximum bonus of £3,000. With the Lifetime ISA you can get up to £1,000 a year in Government bonus, up until the age of 50. If you opened a Lifetime ISA at age 18, that is a maximum Government bonus of £32,000.
Which can you save more into? You can save up to £4,000 a year into the Lifetime ISA, compared to the Help to Buy ISA where you can save up to £200 a month, plus an extra £1,200 in the first month of opening the account.
Which can you use to buy a home in the next 12 months? You must have the Lifetime ISA open and have made your first contribution 12 months before you can use the money to buy your first home. This means if you plan to buy in the next year you should use a Help to Buy ISA, which doesn’t have this restriction.
Want to invest monthly or in a lump sum? With the Help to Buy ISA you are limited to saving £200 a month and if you miss a month you cannot pay double in the next month. With the Lifetime ISA you can contribute up to £4,000 a year, in one or more lump sums or as a regular monthly saving.
Which has higher cash rates? If you want to save into cash you’ll get a higher interest rate with the Help to Buy ISA. The best Help to Buy ISA cash rate available nationwide is 2.58% from Barclays. In comparison, the highest Lifetime ISA cash rate is 1.4% from Moneybox. However, the higher annual limit of the Lifetime ISA, and so higher Government bonus, wipes some of this advantage out.
Which allows you to invest? You can only hold your Help to Buy ISA in cash, while you can invest your Lifetime ISA in funds, shares, investment trusts and ready-made portfolios. This means if you are saving your money for longer you have the potential to generate greater returns by investing.
Which has the highest limit on property value? With the Help to Buy ISA you can use it on a property worth up to £450,000 in London, but only on property worth up to £250,000 outside London. This has proved a problem for some in expensive areas outside of London, such as Cambridge and Brighton. With the Lifetime ISA there is a limit of £450,000 regardless of where in the UK you’re buying.
When can you use the bonus for each? The Help to Buy ISA Government bonus is only issued after you have exchanged on a property, so cannot be used for the initial deposit, which has to be handed over at exchange. With a Lifetime ISA the Government bonus is paid monthly, meaning it can be used towards your deposit at exchange.
What can I use if I’m over 40? If you are over the age of 40, and have not yet opened a Lifetime ISA, you have missed the boat. This means your only option (up to the end of November) is to use a Help to Buy ISA to buy your first property.
Which can I get my money out of easily? With the Help to Buy ISA, if you change your mind or want to make a withdrawal, for something other than buying your first home, you can redeem your money. As the Government bonus will not have been paid into the account, you don’t need to return any money. With the Lifetime ISA, if you want to withdraw money for anything other than buying a first home, retirement, or if you have a terminal illness, you will pay an exit fee. This is intended to claw back the 25% Government bonus, but it actually results in you losing the Government bonus and paying £6.25 for every £100 you withdraw.
For example, if you invest £4,000 you’ll get the 25% government top-up and have £5,000 in total. If you withdraw this not for a first home or retirement you’ll be charged 25%, which equates to £1,250. This means you have £3,750 left, £250 less than your initial investment.
