MARTIN Lewis has reminded those between 18 and 39 that they can get free cash worth £1,000 a year to go towards buying a home.
The money guru shared the tip for first-time buyers in the latest MoneySavingExpert newsletter.
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He explained that anyone who opens and saves into a Lifetime Isa (Lisa) account will get a 25% boost, worth up to £1,000 a year, from the Government.
Savers get the top up every year on nest eggs for up to 32 years so it’s possible to earn interest on the cash too, although there’s a savings limit of £4,000 a year.
But it means if you open an account aged 18 and save the maximum amount every year, you’ll get a free £32,000 top up.
Lifetime ISA catches
HERE are some things you should think about before opening a Lifetime Isa (Lisa) account:
- If you want to buy a home worth more than £450,000 with your Lisa, 25% of what you withdraw is taken off
- You can only use a Lisa for a property if you have NEVER owned a property before (including a share of a property that was inherited, or a home overseas)
- If you’re a first-time buyer purchasing with someone else (a partner or friend, for example), they cannot have owned a property before
- If you’re using the money for a new home it is paid directly to a solicitor, not to you
- If you reach the age of 40 on or before 6 April 2018 you won’t be eligible for a Lisa
- If you’re using the money for retirement you can only access it on your 60th birthday. By contrast, you can access money in a private pension from the age of 55.
The money in your Lisa can be used either towards a first home worth under £450,000 or towards retirement once you’re over the age of 60, but not both.
You’ll also have to pay a penalty if you want to withdraw the cash before buying a house, worth 25% of the amount you take out plus any bonus earned.
The Government temporarily cut the fee to just the bonus to help those struggling through the coronavirus crisis to access their cash.
“Younger savers may argue we’re not yet out of the pandemic and that many still have pressures on their finances but longer-term the government was always likely to reintroduce the full penalty,” said Kate Smith, Head of Pensions at Aegon.
“By increasing the penalty to its previous level it now costs savers more to make an ad hoc withdrawal.
“If the original penalty had not been reinstated, it would have affected the balance of incentives between the LISA and a standard ISA.”
Martin flagged the savings scheme, which has been around since 2017, when talking about the new low deposit mortgage programme which went live this week.
A range of new 5% deposit mortgages hit the market on Monday as the Government’s mortgage guarantee scheme finally launched.
The aim of the scheme is to make purchasing a property more accessible for young buyers with a small deposit by encouraging lenders to bring back 95% loan to value deals.
Almost all of these deals were scrapped early on in the pandemic because they were seen as too risky.
“Whether in the long run this all helps or hinders is complex, but it is odd that while we bemoan most price rises, many celebrate them when it’s housing,” he wrote.
“Yet house price inflation is often just a paper gain, and can cleave away many dreams of home ownership, as well as making upgrading hard.”
But the consumer expert warned not to be fooled into thinking these deals are “special” as many high street brands are offering 5% deposit mortgages outside of the scheme.
He said the programme offers lenders surety but they aren’t any better for borrowers, so homebuyers should focus their search on the best terms for them.
Saving a bigger deposit is still the best option for borrowers to get a better deal, he said, as they typically come with cheaper rates.
A Help to Buy Isa can help to boost your savings as the Government will top them up by 25% up to £12,000 when you use the cash to buy your first property.
These have now closed to new applicants but new savers can open a Lisa instead.
Help to Buy customers can also open an account but they won’t be able to get the top up from both Government-backed schemes to buy a house.
They will also only be able to save into one in the same tax year.
Before opening an Lisa account, you’ll need to shop around to get the best interest rate.
You aren’t tied to one provider, so once you’ve opened a Lisa you should keep an eye out for other Lisa deals and move your savings if you spot a better rate.
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The money expert also explained how those employed and under 22 or anyone on a low income could be in line for a hidden pay rise.
He’s also keen to flag how employees working from home can cash in on £280 to help with the costs.
Martin Lewis tells This Morning viewers how to ‘cash in’ on £280 – just by working from home
