In this article, we will discuss what is a Lifetime ISA account and how it can help you obtain your first mortgage.

Lifetime ISA or LISA is a type of Individual Savings Account designed to help you buy your first home or save for later life. You must be between the age of 18 and 40 to open LISA.

Up until you are 50, you can put into LISA up to £4,000 each fiscal year (the fiscal year in the UK runs from 6th April one year to 5th April the following year). Also, your first payment into your Lifetime ISA must be made before you are 40.

The main feature of LISA is that the government adds a 25% bonus to your savings, up to a max of £1,000 per year, added the next month after your last contribution.

Worth noting, the LISA limit of £4,000 counts towards your annual ISA limit which is £20,000 in 2022. You can either hold your LISA as cash, Stocks & Shares or a combination.

When you turn 50, you will not be able to pay into your Lifetime ISA or earn the 25% bonus. Your account will stay open and your savings will still earn interest or investment returns. 

In the scope of a first mortgage, this account is a powerful tool that allows you to significantly increase your deposit if you are a first-time buyer. In the case of a couple, each one of you can use their own LISA provided you are a first-time buyer, have no other property within or outside the country and have held the LISA account for at least 12 months. If only one of you qualifies, their LISA can be used with no restriction. The non-qualifying person can also use their LISA but it would attract the 25% withdrawal charge.

Let’s see an example of how LISA can help save up for a deposit:

Jack and Jill both opened LISAs in March 2022. They contributed £4,000 to both of their LISA accounts in the same month. The government added a 25% bonus to each LISA in April 2022. So in April 2022, the couple had £10,000 combined in their LISAs. 

On 6th April 2022, Jack and Jill’s ISA allowances were renewed and they were able to contribute to their LISAs again, which they did. The following month, the government added another bonus to both LISAs, making the accounts worth £20,000. 

A year later, in April 2023, the allowances were renewed again, and Jack & Jill contributed another £4,000 each to their LISAs. The government bonus followed in May 2023, and both LISAs were worth £30,000 combined. 

So what do we see as the result is:

In the span of just 15 months, Jack and Jill managed to save a total of £30,000 by contributing only £24,000 of their own money and getting a bonus of £6,000 from the government.

You can find out more information about Lifetime ISA on the Government’s website: https://www.gov.uk/lifetime-isa