Up to £1,000 bonus each year on tax free savings for first time buyers

Posted in: Corporate

The cost-of-living crisis combined with rising house prices and inflation is making owning a home seem an impossible dream for many under 40s, with the average UK house costing £275,000 according to the ONS¹. That’s nearly nine times the average salary²

Recent research by OneFamily found just a third (32%) of under 40s managed to buy a property before the age of 30 and six in ten potential purchasers were worried that they may never be able to do so.  Sixty-three percent of those over the age of 55 had bought their first home by the same age.

However, there is a way to maximise savings for a first home by taking advantage of a Government backed account that provides a bonus of up to £1,000 each year and tax-free returns.

The lifetime ISA account (LISA) is intended to help buyers to get a foot on the housing ladder and can be opened between the ages of 18-39. Up to £4,000 can be saved each tax year into the account, which is then topped up with a 25% Government bonus – up to a maximum of £1,000 each year. There is still time to take advantage of this year’s allowance since the tax year finishes on April 5.

It’s also possible to switch to a lifetime ISA from an ISA, matured junior ISA or matured child trust fund – so long as the value is £4,000 or less.

Paul Bridgwater, OneFamily’s Head of Investments said, “LISAs can be saved in cash or invested in stocks and shares, but it’s worth remembering that, with the rate of inflation outstripping interest rates, any money held in cash savings is effectively devaluing too. A stocks & shares LISA is a good long-term option to consider, allowing investments to track the country’s prosperity to hopefully beat the impact of inflation in the long run.

“Another important point is that any withdrawals that are not for a house purchase are subject to a 25% penalty – so these savings should be thought of as being ring fenced until they are needed.

“Finally, if a LISA is not used for a house purchase then it can be used for retirement provision from the age of 60 and it is possible to continue to pay into the account until the age of 50.”

Notes to editors

Unless otherwise stated, all research conducted by Opinium, on behalf of OneFamily, between 22nd – 25th February 2022, among a nationally representative sample of 2,000 UK adults

[1] According to December 2021 ONS data, the average UK house price was £275,000.

[2] According to the most recent December 2021 ONS data, Median weekly pay for full-time employees was £611 in April 2021, the equivalent of £31,772 annually.