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My fiancée and I waited too long to put money into our Lifetime ISAs (LISAs) and now we’re stuck waiting 12 months before we can use them, thanks to a little-known rule.
The two of us only recently realised the dream of home ownership was within our grasp, if we used schemes like the LISA to save carefully. We’d also been liberated from geographic tethers – my employer is happy for me to work from anywhere I can in future.
This means we can move to a more affordable area of the country than London, namely for our purposes Devon where her family lives. And with introduction of the new 95% mortgage guarantee, it seemed our homeownership goal was tantalisingly close.
Until I realised we’d made a huge mistake with our LISA: You can only access your money to buy a house 12 months after your initial deposit.
It seems like a really simple, stupid error in hindsight. But without being aware of the rule you just wouldn’t know! Here is how our mistake unfolded.
When you set up a LISA you typically have to fund it straight away with some cash to get started.
My fiancée and I tossed around the idea of buying a house for a while, but our 100% confirmed decision to move to Devon – which triggered our new house deposit saving habit – didn’t come until quite recently. We felt under no pressure to get the LISAs open so we could fill them.
Even once we did decide to open them to take advantage of the healthy 25% bonus, in my mind the only real deadline we were working towards was the end of the tax year, which would see our £4,000 limit reset.
So we left opening them till March this year. Having already squirreled away a fair bit of money in our own savings accounts, I figured we could just pile it all in to our LISAs before the end of the tax year before the annual £4,000 bonus reset.
But, it was a huge mistake to not open the accounts and fund them straight away, as soon as we were sure we’d want to buy a house.
In the fine print of the LISA (all LISAs, not provider dependent) stipulate that you need to hold money in the account for at least 12 months before you can access it with the bonus and use it for your first home.
Otherwise, you’re forced to take the money out with a penalty that will leave you with less than you started.
In not depositing sooner, we hamstrung ourselves to waiting until March 2022 to buy our first home. It really felt like a punch in the stomach realising that.
If we had known about the rule before depositing our money, we may never have actually used the LISA. Especially considering the new 95% mortgage guarantee introduced by the government which has seen our property options increase despite the modesty of our current savings.
Push comes to shove we could have lived without the extra bonus thanks to the 95% guarantee, but now our money is locked away until next year, when the property market could conceivably have changed quite a lot.
Here is what I would suggest then. There is no minimum deposit on what you should put in your LISA. So even if you’re on the fence – or if you’re not sure when or if you’ll use it – just open a LISA and put £1 in it. If you never buy a home or use the account, you’ll be precisely £1 worse off.
If you do end up using it though, you will have cut the waiting time down on when you can access our deposit and potentially save money in what is a very fast-moving housing market.
And with the new 95% loan guarantee from the government, that could be sooner than you think.
Top tips for getting the most out of your LISA
- Put money in straight away! Don’t get caught out by the 12-month rule
- Unless you’re planning on saving for over five years, get a Cash LISA. A stocks and shares LISA could see you suffer a shortfall when you need the money if the markets are coincidentally down
- Maximise your savings if you can. You can get up to £1,000 bonus per year, but to achieve that you’ll have to contribute at least £333 per month.
- Don’t put all your house money in the LISA. You can only use these funds for the value of the house, so save extra cash for things like conveyancing and legal fees in a normal savings account instead. These costs vary, but can be anywhere up to £3,000-£4,000.
Edmund Greaves is editor of Mouthy Money. Formerly deputy editor of Moneywise magazine, he has worked in journalism for over a decade in politics, travel and now money.