AD | How I bought a house at 21 with a Lifetime ISA
Buying a house is said to be one of the most important milestones in life, and ever since I was a teenager it has been a dream of mine to own somewhere to call my own. I knew that sitting in the comfort of my own home would make me feel accomplished and secure, so in January 2020 I took the first steps to getting myself on the property ladder, and in this post I want to tell you how I did it.
When did I start saving for a house?
I started saving towards a deposit for a house in late 2016, when I was 18 years old. One of my colleagues was going through the process of buying a house with her partner and she had advised me to start saving as early as possible because of how expensive the whole home buying process was. If it wasn’t for her tips, I don’t know when I would have looked into all the costs of buying a house and started to save towards my first home.
I initially began saving into a Help to Buy: ISA, although upon doing some research online about which savings accounts were available to me, I came across The Nottingham’s Lifetime ISA. The Lifetime ISA was still a very new product on the market, so I decided to look into it a bit more and compare both savings accounts to see which would be more suited to me. The Help to Buy: ISA is also now closed to new applicants and you can only use one if you opened one before 30th November 2019.
I actually opened my Lifetime ISA with The Nottingham and now, a couple of years later we’re working together on this advertorial!
What is a Lifetime ISA (LISA)?
A Lifetime ISA is a type of Individual Savings Account (ISA) which means that it contributes to your personal annual £20,000 ISA limit. The annual overall ISA limit is the maximum amount you can save into every ISA you have each tax year. The ISA limit is £20,000 for the current tax year, and any contribution you make towards a Lifetime ISA counts towards this.
You can save a maximum of £4,000 in your Lifetime ISA every tax year, and the Government top up your savings by 25% every time you deposit money into your account. The maximum bonus you can earn every tax year is £1,000 and you can receive this bonus every tax year until your 50th birthday.
If you are between the ages of 18 and 39 and a UK resident, you can open a Lifetime ISA and use the money towards your first home or savings for your retirement. These are the only two uses for the account and it is not designed for regular withdrawals as there are penalties for ineligible withdrawals so you may get back less than you put in.
How much can I save with a Lifetime ISA?
You can save up to £4,000 into a Lifetime ISA every tax year, as long as you are not saving more than the annual overall ISA limit.
If you opened a Lifetime ISA at age 18 and you maxed out your contributions every tax year until your 50th birthday, you could have £32,000 from Government bonuses as well as your £128,000 savings and tax free interest on top. To calculate how much your Lifetime ISA could be worth over time, check out The Nottingham’s handy Lifetime ISA calculator here.
How do I open a Lifetime ISA?
Opening a Lifetime ISA couldn’t be easier with The Nottingham. Simply head over to their website, and once you have read through the product information and decided that it’s right for you, click ‘Apply’. Or, in usual circumstances, you can open one in branch if you are close to one of their 60+ building society branches.
To open an account, you must:
- Be a UK resident
- Be saving for your first home or retirement
- Have at least £10 to open your account with
- Be able to provide them with your National Insurance number
- Meet ID requirements and the HMRC eligibility checks
My favourite thing about The Nottingham’s Lifetime ISA is that you can open and manage your account online, and once you have saved at least £500 in your account and held it for 12 months, they will give you access to fee free mortgage advice from Nottingham Mortgage Services (NMS), which is usually £299. NMS will search over 60 lenders to find the right mortgage deal for you which saves you shopping around yourself.
Are there any restrictions?
There is currently a 20% Government withdrawal charge (changing to 25% from 5th April next year) if you use the savings for anything other than your first home purchase or your retirement at age 60.
This charge is also applicable if you make a withdrawal before you have had the account open for 12 months, so you could get back less money than you put in if you wanted to withdraw for a reason other than your first home or retirement.
You must also be a first time buyer to use a Lifetime ISA towards a home, which means you have never owned a property before, including a home outside the UK. And if you have inherited a property or owned a share of one, you will not be classed as a first time buyer either.
You can withdraw the funds in your account, including the Government bonus, without the withdrawal charge in any of the following circumstances:
- To buy your first home worth up to £450,000 in the UK at any time after the 12 months you began saving into the account
- If you become terminally ill with less than 12 months to live
- From the age of 60, where you can claim both full or partial withdrawals without paying a charge
How do I claim the bonus?
The Nottingham will automatically claim the Government bonus for you, and it will be added into your Lifetime ISA 4-9 weeks after you make a deposit. This means that you can focus purely on saving money into your account – and let the bonus build up without you realising how much money you have saved!
I genuinely would not have been able to afford a house at the age of 21 without using a Lifetime ISA. It would have taken me so much longer than it did and if you would love the security and feeling of owning your own home, I could not recommend the Lifetime ISA enough as I have personally been a customer of The Nottingham.
If you are planning to buy a home with someone else who is also a first time buyer, you can each open and save money into your individual Lifetime ISAs. You must both meet the eligibility criteria, and you would be able to use both savings and bonuses towards your first home, however the price of the home must not be more than £450,000 both in and outside of London.
You can also use the Lifetime ISA in conjunction with any other Government scheme, including Equity Loans and Shared Ownership, as long as you meet their eligibility criteria.
If you are thinking about opening a Lifetime ISA, you can open one on The Nottingham’s website, as you only need £10 to get started. I didn’t regret it!
If you have any questions, please leave them in the comments below, tweet me @britonabudget with the hashtag #LoveMyLISA or ask The Nottingham @nottinghambs or The Nottingham on Facebook if you have any technical questions.
Whole of market mortgage advice is provided by Nottingham Mortgage Services Ltd; an appointed representative of Quilter Mortgage Planning Ltd, which is authorised and regulated by the Financial Conduct Authority; registered No. 440718. Nottingham Mortgage Services Ltd is a wholly owned subsidiary of Nottingham Building Society and registered in England and Wales, No. 03089887. Registered address: Nottingham House, 3 Fulforth Street, Nottingham NG1 3DL.
Nottingham Building Society, Nottingham House, 3 Fulforth Street, Nottingham NG1 3DL, is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority; registered No. 200785.