LISA

[BumpyRoadAhead]

DS, late twenties, has a Lifetime ISA. He’s got all his savings and a small inheritance in.
But he’s now got a well paid career and he and his partner are saving for a deposit but it looks like the maximum they can spend is £450K without losing all the benefits and paying a penalty to remove it.
They both work long hours and would ideally buy in Central London for convenience and lifestyle.
It seems he can put it in his pension but realistically he’ll need the money.

Cannnot put the LISA into pension. Can change cash LISA to S&S LISA and leave it until age 60 to access.

As first time buyers, could they get somewhere small for under the threshold, then a couple of years later move up.
Maybe a future Government will change the threshold, as it has not kept pace with housing costs, especially in London.

The money can be withdrawn but there is a penalty https://www.google.co.uk/url?sa=t&rct=j&q=&esrc=s&source=web&cd=&ved=2ahUKEwiP9dObkYmCAxU4WUEAHeykDkQQFnoECAkQAw&url=https%3A%2F%2Fwww.gov.uk%2Flifetime-isa%23%3A~%3Atext%3DYou%2520can%2520take%2520your%2520savings%2Ctype%2520of%2520ISA%2520before%252060.&usg=AOvVaw1SI-0ExrVHW9frzMrM6dV9&opi=89978449

That's correct, there is a penalty if you take it out.

They won't get much in Central London for 450k!

That’s the problem @Twiglets1
They’re saving hard and hoping to have a budget of £600 but really need the money tied up in the LISA.

You can wait to access until age 60 without needing to turn it into S&S. Appreciate this isn’t what OP’s son wants to do but wanted to just correct this slight misinformation

@Freyya But leaving it at cash interest rates, which are usually below inflation, for a period of 30+ years would not be sensible. Sure they could do it, but to out pace inflation the money needs to be put to work.

@nanny - don't you also get the government top up?

@OneCup Top-up is added on new contributions to LISA, until age 50.
In this situation they may not be adding anything else to the LISA, so the money already in there has already got the top-up. If it is in a Cash LISA the account then grows by the cash interest rate. If it was in a S&S ISA then the value would go down and up based on the value of the underlying investments. Over 30 year period, the investments if spread globally, should return more than interest on cash.

I’m sorry to say it but I think they may need to take the savings out anyway and pay the penalty. Unless Jeremy Hunt announces they are raising the 450k limit at the Autumn budget.

I know Martin Lewis has been campaigning for it to be increased for a while, because the LISA limit hasn’t kept up with inflation. And 450k (while a lot) doesn’t go that far in London.

This is a really stupid rule for the LISA, and I'm pretty surprised about it because I thought the Tories were all about doing stuff for better off people. I guess they really are just very incompetent.

Buying a cheaper property then moving after a few years isn't really a good solution as I suppose they'll lose out due to the stamp duty situation when they buy their proper house. Plus it will be inconvenient to be living in a house miles out from where they want to live. What about buying the cheaper property but then getting consent to let so they can rent it out then rent where they want to be?