Finance expert Martin Lewis has shown how people struggling to get on the property ladder can get £1,000 for free every year towards their deposit. Speaking on his BBC podcast, the MoneySavingExpert founder said people in this position should take advantage of Lifetime ISAs (LISAs).
These kind of accounts can only be opened by people between the aged of 18-39 - and you can put a maximum of £4,000 per year in up to the age of 50, reports BristolLive. But the real benefit comes because the government will top up your account every year by 25 per cent of what you have in it - so if you have £1,000 you’ll get £250 - and if you put in the full £4,000 you’ll have an extra £1,000.
Mr Lewis said: “Lifetime ISAs are the best currently available savings for anyone who hopes one day to buy their first home because the state will add money to your deposit. They are a tax-free savings or investment account openable when aged 18 to 39.
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"To clarify because people always ask me, the day before your 40th birthday you can open one and you can use it afterwards. The day of your 40th birthday you can no longer open one if you don’t already have one.”
He said he had a series of tips and added: “Number 1 - you get a 25 per cent bonus on everything you put in up to £4,000 per tax year until you’re aged 50. So if you save £1,000 you’ll have £1,250. If you save the maximum £4,000 a year you’ll have £5,000 in there to use towards your deposit.
“You can use it on your first residential home, not buy to let, costing up to £450,000. Those who have never owned or part-owned a home anywhere are what counts as first-time buyers and you’ve got to be buying with a mortgage.
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“But the LISA has to have been opened for at least a year before you can get the bonus.” But he had a big warning about taking the cash out.
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He said: “If you withdraw money from a LISA before the age of 50 for any reason other than buying a qualifying first home you will be hit with what is effectively a 6.25 per cent penalty. That means you will have less money back than you put in.
"That is to try to stop people putting money in LISAs for anything other than as a first-time buyer or as savings for retirement when you get to 60. This is doable even if you’re a first time buyer buying with someone who isn’t a first-time buyer.
"You can still have a LISA and get the bonus. If you’re both first time buyers you can both have a LISA so you can put in the maximum of £4,000 each.
“If you have a partner that you have met and they own a house they have a mortgage on the house and you are joining them to become a part-owner of that house and going on the mortgage you can use the LISA for that in some circumstances.
“My final tip to finish and this is big picture message - if you are aged 18-39 in the UK and you have never bought a house and you don’t have a LISA or a Help to Buy ISA which is its predecessor I would suggest you put £1 in one today. My reason for that is quite simple you cannot get the bonus on a LISA unless you have had it open for a year.
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"So by opening one with a pound now and even if you move it to another LISA provider later you have started that clock ticking then if at some point you suddenly want to buy a house you can immediately dosh £4,000 in it and you would get the £1,000 bonus straight away.“
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