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How to use your Lifetime ISA to buy a home

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The 25% bonus from a Lifetime ISA can be a huge help when buying your first home – but how exactly do you use it?

If you've had your Lifetime ISA (or LISA) for over a year, you're able to cash it out as a first time buyer, but you have to make sure you're following the rules. 

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The tax-free savings account which launched in April 2017, allows under 40s to put in up to £4,000 each tax year. Any money saved in a LISA receives a 25% government bonus on top. That's a maximum of £1,000 you can earn as a bonus each year. 

The bonus is paid monthly on any new money deposited. This means savers don’t have to wait another year to further boost their house deposit.

When the Lifetime ISA can be used by first-time buyers

As well the LISA needing to have been open for a year, there are a few criteria that need to be met before the savings and bonus can be used on a home purchase.

The home must:

  • be in the UK 
  • be the first home you own
  • be purchased with a mortgage (i.e. not cash)
  • cost £450,000 or less
  • be where you live.

You can also buy with another first time buyer and both use a LISA and bonus, however the criteria above still apply. Or you can use it to buy with someone who isn’t a first time buyer, though they can’t use their own LISA.

If you’re thinking of taking advantage of a shared ownership scheme, then the total price of the property – so your percentage of equity plus the remaining equity – but also be £450,000 or less.

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Getting the money

As long as the home you’re buying fits the above list, then it’s time to get hold of the cash. But don’t just withdraw it. Do this and you’ll pay charges. Instead you need to apply to the LISA provider for the money to be sent to your solicitor or conveyancer.

The money can be used for your exchange deposit (the money you hand over when you “exchange” contracts). However, this has to be done less than 90 days ahead of your completion, when you hand over the rest of the money and get the keys.

If the sale falls through your conveyancer will be able to put the money and bonus back into your LISA - though it must be the exact same amount.

However, if there was mistake and you weren’t eligible to use the bonus, say the property actually cost more than £450,000, then you’ll be hit with withdrawal charges – so make sure you can use the cash before it’s taken out of the LISA.

Not using it for a first home

If you’ve changed your mind – perhaps the house you want to buy costs more than £450,000, or maybe you just can’t afford to buy – then you’ve a couple of options.

If you choose to take out the money you’ve saved now, then you’ll be hit with a 25% charge. This not only removes the bonus you’ve been paid, but also takes out some of your savings.

A better option is to leave the money in the LISA until you reach 60 years old. Then you can access it without any charge. You can keep saving into the account until you are 50 years old.

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