FIRST-TIME buyers could be missing out on a £32,000 free cash bonus from the government to put towards their new home.
House hunters should consider opening a Lifetime Isa to help them save up to get on the property ladder.
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When you open a Lifetime Isa the government will add 25% to your savings, up to a maximum of £1,000 a year.
That means if you put in £4,000 a year you’ll get a £1,000 free cash bonus to put towards your first home.
If you save the maximum amount between the ages of 18 and 50 you could get as much as £32,000 for free.
You’ll also earn tax-free interest on your savings pot, including on the added extra from the government.
James Andrews, senior personal finance editor at Money.co.uk, said: “The Lifetime ISA (LISA) is a fantastic option for people who are fighting the growing cost of getting on the property ladder.
“This type of savings account entitles you to a 25% bonus on savings of up to £4,000 a year, meaning you can benefit to the tune of £1,000 annually.
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“Meanwhile, because it’s an ISA, the interest you earn on your savings is tax free.”
But there are strict withdrawal rules on Lifetime Isas, so you should think carefully before stashing your cash.
Make sure you definitely want to spend your savings on property, as there are strict withdrawal rules and you’ll be charged if you decide to spend it on something else.
You’ll pay a withdrawal charge of 25% if you take it out for a different reason, with a few exceptions.
James added: “This means that if you are thinking of opening a LISA in order to save for your first home, you must be confident that you will end up spending the cash to get on the property ladder. If not, you may end up massively out of pocket.”
If you want to use your Lifetime ISA to buy your first home, there are some conditions you have to meet.
The property must cost less that £450,000 and you must buy it at least 12 months after you make your first payment into the Lifetime Isa.
You have to use a conveyancer or solicitor to act for you in the purchase as the Isa provider will pay the money directly to them.
You must also be buying with a residential mortgage, rather than any other kind of financing.
Couples who are buying a property together can both open a Lifetime Isa and benefit from the bonus – taking the potential free cash to £64,000.
You can withdraw money from your Isa if you’re buying your first home, but also if you’re 60 or over or terminally ill with 12 months to live.
Who can open a Lifetime ISA?
To open a Lifetime Isa you must be over 18 but under 40 years old.
When you turn 50, you can no longer pay into the Lifetime Isa or earn the bonus.
But your account will stay open and you’ll still earn interest or investment returns.
The amount you save comes out of your yearly Isa allowance, which is £20,000 for this tax year.
When you’re 60 you can withdraw the money to spend on whatever you want, without any additional fees.
How can I open a Lifetime ISA?
To open a Lifetime Isa, you first need to choose a provider.
Make sure you check the terms and conditions, such as minimum deposits and monthly interest rate.
You can choose between a cash ISA and a stocks and shares ISA.
The first option will provide reliable but potentially lower returns, while the latter could help you boost your savings but comes with a risk.
Use a comparison website to make sure you’re getting the best Lifetime Isa for your needs.
Money.co.uk has a comparison tool, or you could use sites including Compare The Market and Moneysupermarket.
Once you’ve chosen, most providers will allow you to open an account online, but you may have to go into a branch in some cases.
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