The Budget was interesting on 16th March 2016; not least because we saw the Government announce a new “Lifetime ISA” which is set to be introduced from April 2017. This ISA is designed for those that are trying to save for either a new home or retirement and is specifically targeted to those under 40.
We wrote about the Help to Buy ISA back in January as part of the Government’s flagship housing scheme and it seems this new Lifetime ISA is another opportunity to get more people owning their home. Launched in December 2015, the Help to Buy ISA has reportedly helped over 250,000 first time buyers save for their first home, with its success most likely proving to Osborne that another ISA scheme is the way forward. But the Lifetime ISA is different because it gives people the choice of what they do with the money they save. The added flexibility will greatly help those under 40s that want to save but haven’t been able to start a pension yet or afford to get on the property ladder.
The new Lifetime ISA scheme will allow people to save up to £4,000 per year until they are 50 years old. Plus, for every £4 saved, the Government will top up the ISA savings with £1. Not a bad return when you consider many standard ISA schemes are paying less than 2% at the moment.
Let’s look at a typical example of what this could generate for you.
- A 28-year-old woman saves £2,000 every year until she is 50.
- That would mean she has £44,000 in savings by the time she hits the scheme threshold.
- But, with the added bonus of the Government contributions, she will have an extra £500 in her Lifetime ISA each year – and that adds up to £11,000 by the time she reaches 50.
- Grand total = £55,000, which can be used as a deposit for a house or a retirement fund.
There will no doubt be sceptics and much debate over this scheme in coming months, but on paper it sounds like there is a real opportunity to help savers and encourage more home ownership across the UK. An article in the Guardian last year reported on “generation rent” with many under 40s still privately renting due to the rising cost of house prices. Startling figures from the Council of Mortgage Lenders showed a stark contrast in home ownership over recent decades. Those that were born in 1970 and then reached 40 predominantly owned their own homes at this age, with a healthy 71% owning a property. However, by the time those born in 1990 reach 40, the figure is expected to be just 47%. The Budget today has clearly addressed this pressing issue and it is hoped that the Lifetime ISA will help to turn this around.
Obsorne also announced today that he is increasing the standard ISA saving limit from £15,000 to £20,000 – a welcome change by many.
Jenny Bland, our Head of Residential Property commented:
“The Lifetime ISA is seemingly another welcome addition to first time buyers. It remains to be seen whether it will prove more popular than the Help-To-Buy ISA and as to whether this will replace the lost buy to let investors who will seemingly look for other investment opportunities.”
Do you need advice on buying your first home? Speak to our Residential Conveyancing team by calling 0113 284 5000 today.