ISA Options For Millennial Investors Saving For A First Property
We all know how difficult it is to make that first step onto the housing ladder. Getting together the initial deposit is probably the toughest challenge for anyone not lucky enough to be able to avail of financial assistance from their families. But the government has set up two ISA products especially targeted at millennials desperate to invest in their own home – the Help to Buy ISA and Lifetime ISA. Let’s take a look at how the two options compare to help you make a choice of which might be the better wrapper for you.
The Help to Buy ISA was first launched in 2015 and the government will begin to phase it out on November 30th of this year. That means millennials who want to take advantage of this particular ISA format have limited time left to set one up through an online provider. Help to Buy ISA’s offer a government top-up of 25% on every £200 saved up to a maximum of £12,000. That means up to an additional £3000 is added to savings in a Help to Buy ISA. These ISAs are also open to every individual so a couple saving for a deposit together can get up to £6000 added to their total, which can be put towards a first property valued at a maximum of £250,000, or £450,000 in London.
The drawbacks of a Help to Buy ISA are that only a cash format, not investment options, are available. Interest rates offered can reach as high as slightly better than 2.5% though, which does make them a more attractive option than a standard cash ISA. Another downside is that the funds, and government bonus, can only be used once a property purchase completes so they can’t be directly put towards a deposit. Some savers get around this by taking out additional credit or loans that are then immediately paid off by the Help to Buy ISA once it can be accessed.
The second option is the newer Lifetime ISA, which was introduced in 2017 and available to those aged between 18 and 39, almost perfectly capturing the millennials demographic. Once opened, savers and investors can pay into a Lifetime ISA until they are 50. Available in a stocks and shares format as well as cash, the Lifetime ISA will appeal more than the Help to Buy option for those investing online and keen to improve on the current reality of low cash interest rates.
Up to £4000 a year can be paid into a Lifetime ISA, which means if opened at the age of 18 and paid into until 50, you can benefit from up to £33,000 of government top-ups. While not exclusively usable towards a first property, a Lifetime ISA can be. One big advantage over the Help to Buy ISA is that funds can also be accessed before completion so can be used directly towards or for the entirety of a deposit.
Of the two options, the Lifetime ISA provides the same advantages as a Help to Buy ISA, while offering greater flexibility.
Please remember that financial investments may rise or fall and past performance does not guarantee future performance in respect of income or capital growth; you may not get back the amount you invested.
There is no obligation to purchase anything but, if you decide to do so, you are strongly advised to consult a professional adviser before making any investment decisions.