What Is a Lifetime ISA (LISA) and How Can It Help You Buy Your First Home?

If you’re saving up to buy your first home, the Lifetime ISA (LISA) could give your savings a welcome boost. It’s a government-backed savings account that rewards you with a 25% bonus on what you save – and it’s specifically designed to help people like you get onto the property ladder.

Now that the stamp duty changes have been implemented, and the ISA allowance has reset, it's the right time to take a closer look at how it works and whether it’s the right move for your home-buying journey.

How Does a Lifetime ISA Work?

You can open a LISA if you’re aged between 18 and 39, and save up to £4,000 each tax year. The government then adds a 25% bonus to your savings. That means for every £1,000 you put in, you get an extra £250.

You can keep saving into your LISA until you turn 50, and use it to either:

• Buy your first home (up to £450,000)
• Save for retirement

Using Your LISA to Buy a Home

If you’re a first-time buyer, you can use your LISA savings – including the government bonus – towards the purchase of a home that costs up to £450,000. The account must be open for at least 12 months before you use it.

It can be used for any type of residential property, and the funds must go directly to your solicitor or conveyancer during the purchase.

The Benefits of a LISA

• Free money from the government – up to £1,000 per year in bonuses
• Tax-free savings – interest earned and the bonus are tax-free
• A big boost towards your deposit – ideal if you're struggling to save
• You can still get a mortgage – the LISA bonus just helps you get there faster

What are the Downsides?

There are a few rules to keep in mind:

• If you withdraw the money for anything other than a first home or retirement, you’ll pay a 25% penalty (which could mean you lose some of your own savings, not just the bonus).
• The property must be your main residence – you can’t use it for a buy-to-let.
• You must use a conveyancer or solicitor to handle the purchase with your LISA provider.

here's an Example

Assuming no growth, initial savings of £800 will earn a 25% government bonus of £200 and give you a pot of £1,000. If you wish to withdraw the entire pot, a 25% charge will apply to the full £1,000. You’ll have to pay a government withdrawal charge of £250. This will leave you with £750.

If you only wish to access some of your money, you’ll have to take the withdrawal charge into account when requesting funds. You’ll have to withdraw more than the amount you need, to cover your needs and the 25% withdrawal charge.

How It Fits With a Mortgage

Your LISA is separate from your mortgage – it helps boost your deposit, which in turn can help you secure a better mortgage deal with lower monthly payments.

Seek Professional Guidance

At Windsor Hill Mortgages, we regularly help first-time buyers use their LISA savings as part of their deposit and find the right mortgage to match. We can also talk you through how much you might be able to borrow, what kind of mortgage suits your situation, and how to plan ahead.

Speak to our team today and we'll take you through your mortgage options.