Is anyone using a LISA to save for a new home?

[HollowTalk]

My son and his wife plan to buy in a year or so - they're saving up for a deposit.

They are looking at LISAs - if they put in £4,000 each the government will give them £1,000. They are thinking of each putting in £4,000 this week and then each putting another £4,000 in at the start of the new tax year in April, so £16,000 in but getting back £20,000.

He's speaking to Nutmeg about this and the guy there has said that if their investments fail (it's a stocks and shares LISA) then they could end up with less than that. Obviously they don't want that - they don't mind so much if they still get out of it what they put in, but don't want to lose anything.

Does anyone here know anything about this? I'm assuming they mean if there's a stock market crash they might not get that £16,000 back, but then surely mortgage rates would be very high and so they'd put off buying somewhere?

Does anyone have any advice, please?

I think if they need the money within 2 years, and are worried about the investment dropping in the short term, a cash LISA might be better.
The returns will likely be lower, but it is safer over the short term.

Moneybox do a cash lisa. It has paid a bit of interest - not loads. Dd has one.

Stocks and shares ISAs aren’t always the best for short term investing as, although the stock market has a long term upward trend, it still fluctuates a lot in the short term. I have nutmeg products and I’ve been able to choose my level of risk so maybe they could do that so the money will be invested in low risk stocks or they could have a cash LISA instead. If they are intending to buy fairly soon then there isn’t much incentive to have a high risk ISA as there is barely any time to make gains from the stock market. The market would have to drop 20% for them to get out less than they put in, which is pretty extreme so it seems like a good bet. If they decide not to buy a house they can’t get their money back until they are 60 though.

In fact this phrase stands out:
"they don't mind so much if they still get out of it what they put in, but don't want to lose anything"

I'm not an expert or a financial advisor, but if that statement is true then i think a cash LISA would be the better choice for them.
I think there are more providers offering cash LISAs than S&S LISAs, but have not checked recently.
Even if the interest rate is crap at least they would get the government contribution!

For long term growth I would personally always go for S&S low cost trackers, where short term dips don't matter. But for their position and priorities, it sounds like cash is a better option.

We used a Lisa,not stocks an shares one,you get 25% each tax year so save £4000?you get £1000 of the government,the bonus was paid monthly as well,can’t touch it for a year though or you lose the bonus,we used moneybox.

Just use a cash one if they're buying this year or next. If they're open to some risk then one of them could open a stocks and shares LISA, and the other can get a cash one.

If they are buying within a year, then putting lots of money in a newly opened LISA is NOT a good idea as it needs to be open for a minimum of 1 year to keep the bonus.
I am sure they already know that but just thought it was worth mentioning!

If they do plan to buy within a year, it is probably still worth opening a LISA with a small amount in, as this will "start the clock". Then if they end up buying later than planned, and a year will elapse between opening the account and buying the house, they can invest more money in the LISA.
Martin Lewis on Money Saving Expert has a good article on this.

What's a cash ISA then? They are doing it to get the govt money, so it has to be a LISA and Nutmeg only seems to talk about a stocks and shares LISA.

They don't have to get it through nutmeg. Mine is with moneybox. There's a page about LISAs on money saving expert they could read.
A cash lisa is one where they invest cash rather than investing in stocks and shares

I've just found the MSE link, thanks. It's here for anyone else who's interested.

Thanks so much - they'll go down the cash LISA route and will use Moneybox.

They'll need to open one with another provider, Nutmeg only offers a Stocks and Shares one. A search online for cash LISAs will give them a list. They'll get the same bonus but there's less risk/ potential reward.

We are currently doing this. Tell them to apply for a Skipton Lifetime Isa. Its not stocks and shares as you said. Guaranteed bonus from the government to buy a new home. Both people in the couple can open one and BOTH can he used against deposit. So tell them to both open one now, VERY QUICKLY put 4k in each (before end of March). They will receive 1k bonus each. They can then add upto 4k EACH PER YEAR (Starting in April)! Its brilliant! We have saved loads and had 4k in bonuses in 2 years!

Yes, that's what they plan to do, @Beachbabe1. They'll each buy one today and buy another on 6th April.

So once they've bought their house, could he continue to pay in £4,000 and get £1,000 back each year if he's saving for retirement? He's self-employed and has a pension set up but this would be something he could afford to do, especially if the £1,000 continues each year, as that'd be 25% regardless of what interest is gained. And am I right in thinking if he saves until 50 (maximum age for a LISA) he has to leave it in until he's 60? That would be fine but just checking.

I think so Hollowtalk although for longer term savings goals he would almost certainly be better investing in a S&S LISA rather than a cash one.
So cash for short term saving if he is worried about losing money (ie for the house purchase).
Low cost tracker fund for long term saving goals (which could be LISA, normal ISA, or pension products).

He should also take advantage of work based pension scheme as well. Especially if the employer matches his contributions.

And in his position I would have some savings which AREN'T locked away as long as a LISA earmarked for retirement would be.

I split savings between:
Short term: (cash and premium bonds). For emergencies, unexpected expenses, and short term goals like house improvements.

Medium term: (regular stocks and shares ISA, invested in low fee tracker fund via a low fee but regulated platform). Should perform well, but I hopefully won't have to dip into this at bad times - ie if there is a short term fall in the market.

Long term: pension and a small LISA (although I only have a tiny, tiny amount in my LISA.)

I'm not super loaded or anything as the amounts in each of these pots are not gigantic. But they are growing.

He's actually really good with savings and has lots of different pots. He did say he'd do a S&S LISA in future, but for now the cash one has less risk. He invests with the S&P 500, some crypto and has a savings account with his bank for everyday things already. He's a 50-50 owner of a small company that's doing quite well so they pay for pensions out of that. He's pretty on the ball with it really - no idea where that came from as when he was in school it was like I was pushing a huge boulder up a hill!