Using a LISA to Buy Your First Home: A Step-by-Step Guide for First-Time Buyers

Are you looking to buy your first home?

A Lifetime ISA (LISA) might just be the financial tool you need to turn your homeownership dreams into reality.

In this comprehensive article, I’ll walk you through the advantages of a LISA, the requirements for using it to purchase your first home, and steps to make the most of it through strategic investing.

What is a LISA and Why Should You Use One?

A Lifetime ISA (LISA) is a government-backed individual savings account designed to assist UK residents in achieving two significant financial goals:

• buying your first home and
• saving for retirement.

One of the biggest advantages of a LISA is the government bonus. For every £4 you contribute, the government adds an extra £1, giving you a 25% boost to your savings.

This can make a substantial difference in helping you build your home-buying fund faster.

Note that the maximum contribution per tax year is £4,000. This means the government will support you with an extra £1,000. Making that a total of £5,000.

Requirements for Using a LISA to Purchase Your First Home

To harness the benefits of a LISA for your home purchase, you need to meet specific criteria.

These are;

• You have never owned a property before. This includes properties in the UK or in any other country. If you owned a property, or a share of one, through inheritance this counts as owning a property.
• The property costs £450,000 or less.
• You buy the property at least 12 months after you open a Lifetime ISA. Your LISA is considered open from the date of your first contribution into the account.
• You use a conveyancer or solicitor to act for you in the purchase.
• You’re buying with a mortgage (using a buy to let mortgage is not permitted).

Steps to Supercharge Your LISA Through Investing

The government bonuses are amazing but to make the most of your LISA, you should also invest your savings into assets that appreciate over time.

This makes your money work for you and helps you reach your financial goals more effectively.

Here’s how your can do that;

1. Decide on Required Amount and Time Horizon:

   Begin by setting a realistic savings goal for your first home. Consider your desired property price and the time frame within which you plan to buy. This will help you decide better the type of assets you can buy.

2. Choose a Platform and Be Fee-Aware:

   Research and select a trustworthy platform to open your LISA. Be mindful of fees that could eat into your returns. Look for platforms that offer low fees and a variety of investment options.

   I’d recommend Hargreaves Lansdown as their fees are one of the lowest in the market and they offer a wide range of investments to choose from.

3. Invest in Stocks and Funds:

   Don’t settle for merely depositing money into your LISA. Invest in assets like stocks and funds that have the potential to yield higher returns over time. Your choice of assets should align with your time horizon and risk tolerance.

   Let’s take a look at an example.

   If you invest the total annual amount of £5,000 by investing £333 (plus the additional 25% government bonus of £83) into an ETF that appreciates by 10% over 5 years, you’d have a little over £30,000. That’s an extra £5.000 generated from investments.

   Amazing, isn’t it?!!

   The best part is that this is tax free because you are using a LISA.

   

4. Withdraw When Ready:

   When you’re ready to buy your first home, you can withdraw your funds, including the government bonus and investment returns.

   Notify your LISA provider of your intention to use the funds. They’ll provide a document confirming your eligibility, which you’ll share with your solicitor. They’ll handle the necessary steps to complete the purchase. The funds are transferred directly to the solicitor.

   This process ensures a smooth transaction and maximizes your financial benefits.

   Remember, withdrawing for any other reason might incur a 25% penalty to the total funds in your LISA. Always consult your provider and a professional for guidance specific to your situation.

Other Uses of a LISA – Planning for Retirement

Like I earlier mentioned, a LISA isn’t just useful for buying your first home. It’s also a valuable tool for retirement planning.

After reaching the age of 60, you can withdraw your LISA funds tax-free, providing a potential additional source of income in your retirement years.

Conclusion

Using a Lifetime ISA (LISA) is a strategic way for first-time home buyers to accelerate their journey toward homeownership.

With the government bonus and the potential for investment growth, your LISA can be a powerful tool in your financial arsenal.

Remember to assess your financial goals, choose suitable investments, and keep your eye on the prize – your dream home.

Get Smarter About Your Money

Are you looking to take control of your finances but don’t know where to start?

Or do you want to know how to invest in the stock market but lack the desired knowledge?

Learn how to make your money work for you by registering for my investment workshop. I work with my clients to help you understand your financial goals, risk profile and choose the right investments for you.

At the end of each workshop, I will work with you to create an investment plan that will put you on the path to creating wealth.

Register here to get started.