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First Time Buyer

What to do if you missed the Help to Buy ISA deadline

Joanna Faith
Written By:
Joanna Faith

If you’re a first-time buyer saving for a home, you can no longer open a Help to Buy ISA. But don’t panic – you can still get ‘free’ cash towards your property purchase by opening a Lifetime ISA.

The Help to Buy ISA shut to new entrants on Saturday 30 November after four years. The account, which offered savers up to £3,000 of ‘free’ money from the government, has so far helped Brits buy over 256,000 homes, worth a total of £44bn.

Existing Help to Buy ISA accountholders can continue contributing into it until 30 November 2029, and they’ll be eligible for the government bonus as long as they buy a property before December 2030.

But for anyone who missed the chance to open a Help to Buy ISA, a Lifetime ISA could be a good alternative.

What is a Lifetime ISA?

The Lifetime ISA was the brainchild of former chancellor George Osborne. The savings account launched in 2017 and allows people to save for a first home or retirement.

You can save or invest up to £4,000 tax-free every year – compared to £2,400 a year with a Help to Buy ISA – and the government pays a 25% bonus annually until you reach the age of 50, up to a maximum of £1,000 a year.

The Lifetime ISA is available to anyone aged 18-39. You can continue making deposits until you turn 50.

The downside to the Lifetime ISA is you can’t get hold of your money without paying a 25% penalty – unless you’re buying your first home or you’re over 60.

It’s worth remembering that the Lifetime ISA limit of £4,000 counts towards your annual ISA limit, which is £20,000 for the 2019 to 2020 tax year.

Where can I open a Lifetime ISA?

Unlike with a Help to Buy ISA, you can open a stocks and shares or a cash Lifetime ISA.

A handful of providers currently offer a stocks and shares Lifetime ISA: AJ Bell, Hargreaves Lansdown, Nutmeg, The Share Centre and Moneybox.

Five providers offer a cash version but unfortunately, rates are pretty poor.

The best deal is 1.40% from Moneybox, which isn’t great when compared with the best Help to Buy ISA rate of 2.58% from Barclays.

The Moneybox account is also only available via an app, so it may not suit everyone.

The second-best rate is from Nottingham Building Society, which offers 1.25%.

The latest entrant to the Lifetime ISA market, Paragon, pays 1.15%, while Newcastle Building Society and Skipton Building Society offer 1.10% and 1.00% respectively.

Will competition heat up?

When the Paragon Lifetime ISA launched last week, Anna Bowes, co-founder of advice site Savings Champion, said: “Hopefully this new account will be the first of many new cash Lifetime ISAs to the market.

“I would especially expect to see Lifetime ISAs launched by some of the high street providers, such as Barclays, Nationwide and NatWest, which currently offer some of the best Help to Buy ISAs on the market.”