Finances and savings is something I have talked about previously on my blog and YouTube channel. I wanted to talk about this again and in particular the government saving schemes for property. I’ll be covering a few things in this post including how the government is doing in regards to first time buyers as well as the Help To Buy ISA and Lifetime ISA accounts.
The first of the accounts I’m talking about is the Help To Buy ISA. This is something that I opened back when I finished university. I am quite careful with money and even though I buy the latest tech products, I don’t spend unnecessarily on a daily basis so am able to save money in other ways. The Help To Buy scheme is essentially a tax free savings account with a 25% state bonus incentive included. It was kind of a trial before the Lifetime ISA launched last year which is an improvement in my opinion. You can pay £200 in a month (if you miss a month you cannot back-pay) and in your first month you can top it up by an additional £1000. I was fortunate enough to be in a position where I could pay in £1200 in my first month and I never missed a payment into the account from that date onwards. It gradually builds up and you get interest paid on the balance as well.
I originally opened my Help To Buy ISA with Lloyd’s Bank before switching it (and all funds) to Barclays as they had a significantly better interest rate. The bad thing about this type of account is that the 25% bonus is paid after the completion of your mortgage deal. This means you cannot rely on the bonus for legal fees, deposit or even stamp duty if you don’t want to be short of cash. Quite a restriction when it is already a challenge to purchase a first home and get on the property ladder.
The Lifetime ISA launched at the start of the tax year, April 2017. It was only available initially as a stocks and shares ISA before Skipton building society launched a Cash Lifetime ISA in June 2017. I had initially opened a Nutmeg account which made a loss of £0.09 (not a huge amount) between April and June but I expected this as I only deposited £100 and kept it in a short period of time.
Once I switched the Lifetime ISA to Skipton I didn’t deposit anything else into the account until the end of the tax year. Ultimately I opened it to start the clock ticking to account maturity (twelve months from account opening). Until that point the account balance can not be withdrawn for property purchase. I then continued to pay into my Barclays Help to Buy ISA for that tax year before transferring it in full to my Lifetime ISA. The deadline for this was the end of the 2017-8 tax year. Once the funds were transferred and my Help To Buy ISA was closed, I topped up the Lifetime ISA to the £4000 annual deposit limit (higher than what you can pay into Help To Buy).
Deposits into the Lifetime ISA can be used for buying your first home and/or retirement. There are penalties for removing the funds for any other reason which actually makes a loss compared to what you pay in and you are not eligible for the 25% bonus. You can put £4000 in per tax year but there are no limits on when you have to pay this in so is a lot more flexible than Help To Buy.
I now pay in £4000 a year into that account and the best part about this account is that the government bonus is paid monthly (after the first year) and you accumulate interest on the full balance. So essentially the state give me £1000 a year for my deposits and I make interest as well. The money in the account is accumulating faster than I thought I could ever save and I am so proud of how much I have put away so far. It definitely is a challenge at times but I am ruthless with making sure I meet my saving goal!
The final point I wanted to touch upon with the Lifetime ISA is the interest rate. My Help To Buy ISA with Barclays had 2.25% interest and my Lifetime ISA with Skipton has 0.75% interest. This is because there are not many banks or building societies offering the Lifetime ISA at the moment so if you want a cash account opposed to stocks and shares, your options are limited. I am looking forward to more providers joining the scheme and offering the account, at which point I will switch to whoever offers the best interest rates.
The last point I wanted to make is about the government’s stance on buying property and what they are currently doing. There is housing that has been developed for first time buyers at reduced market rates and savings accounts with a 25% bonus amongst other schemes. These are the ones that stand out mostly to me but I don’t feel like these are enough of a help at all. This is my personal opinion and I am open to discussion on this however the problem I think we have is irresponsible lending by banks years ago. This lead to people getting into negative equity (lending more than the house price to work on the property and then the final value not covering this lending). I also think the help to buy housing is hard to come by and if you’re not willing to move away to where it is offered you have to look in the regular market. The fact of the matter is that banks are becoming more and more strict and stringent when it comes to offering mortgages and there isn’t enough in place by the government to help this process. It’s all good and well saving for a deposit and putting down money on a property but ultimately the mortgage is what enables the purchase of the home. I feel like things aren’t going to get any easier at the moment so am continuing to save as much as I can and hopefully in the future I will be able to purchase property of my own.
Have you thought about the Help To Buy or Lifetime ISAs available in the UK? Or are there other schemes like this where you are? Thank you for reading and have a great day! 🏡