More than one in three people eligible for it don’t know about it
People across the UK are being alerted to an HMRC payment that adds up to substantial cash. One of the biggest challenges for many prospective buyers is accumulating a sufficient deposit to secure that crucial first step onto the property ladder.
After rent, bills and various other expenses have been covered, there’s frequently little remaining for hopeful buyers to set aside for their deposit.
Making things even more difficult, Patricia Ogunfeibo, founder and non-practising solicitor at tenant2owner, a free resource for first-time buyers, reveals many individuals are unaware they can receive just over £83 monthly for free from the Government via HMRC through the lifetime ISA, or LISA.
She explained: “I’m still shocked by how many aspiring buyers are simply unaware that the Government will contribute to their deposit through the LISA. There’s free money available and far too often it’s just not being taken.
“In a recent survey commissioned by HMRC, 37% of people who were eligible for a LISA had never heard of it. In other words, nearly four in 10 people who could open one didn’t even know it existed and that’s really worrying. It also suggests the Government has failed to do enough to promote this valuable way to save.”
Through the Lifetime ISA, first-time buyers can save up to £4,000 annually towards a deposit and, for every £4 they save through it, the Government contributes £1.
“The impact this top-up can have on people’s ability to buy should not be underestimated,” said Patricia. She continued: “For many people, it will significantly increase what they are putting aside each month, and that can get them to their target deposit far sooner. Which means they get the keys to their first home far sooner.
“Effectively, the government is giving people up to £1,000 in free money each year towards their deposit and yet many just aren’t aware that this support is available. Only last week I was speaking to another first-time buyer who had no idea it existed. And even if people have heard of it, they often don’t understand how to take one out or the way it works. There’s a lot of confusion.”
Patricia explained that individuals can invest in a LISA either as an interest-bearing cash LISA or a stocks and shares LISA, where their funds are put to work. First-time buyers can use these funds tax-free to purchase a property worth up to £450,000.
The LISA is available to UK residents between the ages of 18 and 39, who are permitted to contribute up to £4,000 per tax year until they reach 50. While it’s possible to hold multiple LISAs, contributions can only be made into one each tax year.
It’s also crucial to bear in mind that a 25% penalty is applied should funds be withdrawn for any reason other than by someone aged over 60, or to purchase a first home, effectively wiping out the tax-free bonus.
Patricia said: “Many people turn to their parents, grandparents and even friends when trying to grow their deposit, but the one friend many aren’t turning to is the one called LISA.
“LISA can be a massive help for those first-time buyers who may not qualify for a 100% loan-to-value mortgage or who are uncomfortable about getting one due to fears of negative equity.”
