Martin Lewis regularly advises savers on where they should place their money and if they should switch accounts to get a better deal. However, ISA account holders can face certain penalties if they move between various options and the Money Saving Expert addressed this on This Morning today.
This morning, a woman named Chloe rang in with the following conundrum: “[I set up a] Help to Buy ISA in June 2019 and I’ve got just over £4,000 in there at the moment.
“But I didn’t realise that you can only use that money for the mortgage deposit, not the initial deposit.
“My fiance has a lifetime ISA with £15,000 in it at the moment, we can afford to make it to 20 without touching my ISA and we’re looking to buy in the region of £230,000 in early 2022.
“I was just wondering if we should open my own lifetime ISA and move my Help to Buy ISA money in there so I can use the money for the initial deposit?”
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Martin addressed her question and urged others in similar circumstances to take note: “Let me just fill everybody else in watching your dilemma. So, both the Help to Buy ISA and the Lifetime ISA are products that gets first time buyers a 25 percent boost on whatever they save on them towards their first home.
“The Help to Buy ISA is still available if you’ve opened one but you can’t get a new one, you can only get a new lifetime ISA.
“The top payer is moneybox and anyone looking to save for a first time home should go and have a read about that, there is some complexity so don’t just do it but have a read first.
“So you’re quite right, the Help to Buy ISA gives you the money at completion so it’s used towards the mortgage deposit, the lifetime ISA gives you the money at exchange, so you can use it towards the deposit that you’re giving the people that you’re buying the house off to, so, if you’re definitely going to use it, there would be no problem putting it in a lifetime ISA.
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“There is one fly in the ointment though, you have to have had your lifetime ICER open for a year before you can use the bonus on it.
“Now you’re talking about buying in next January or February, so if you did and you had the money in the lifetime ISA, you couldn’t use it towards your first home, therefore you’d have to pay a penalty to get the money out to use on anything else.
“So I wouldn’t do it, frankly I would add more money to your boyfriend’s Lifetime ISA, keep your money in the help to buy and use that towards a mortgage completion to get your 25 percent and use his Lifetime ISA at the earlier point to help you with the deposit you need.”
Chloe then asked Martin for clarification on these ISA rules, querying if the 12 months rule only comes into effect after a Lifetime ISA is opened and not just to add new money.
Martin concluded by providing more clarity on this: “No, it’s we months after so if you’ve already got one open it would be fine.
“I would advise anyone out there who may want to save for a house if you’re between 18 and 40 good put a quid in a lifetime ISA now, because then it’s open, and even if you’re not saving it, then you’ll get rid of that one year rule, pretty quickly.
“Once you want to start putting money in it if not, you’ll lose six pence on the pound if you take it out but you can cope with that.”
ISAs in general can have money invested into them within the tax year, which runs from April 6 to April 5.
For both the current and coming tax year the most that can be saved into ISAs is £20,000.
This can be split among the four main types of ISA, which includes:
- Cash ISAs
- Stocks and Shares ISAs
- Innovative finance ISAs
- Lifetime ISAs
Junior ISAs can also be opened for children under 18 but these have a limit of £9,000.