Saving for a First Home

Early in a doctor’s career, saving up to buy a home may be the first financial goal.  Later on, doctors with older children may be looking to help them save for their first property purchase.  Here we look at how to get the most out of your savings and build up the money for a deposit.

Rather than squirreling money away in a bank account, if you know you want to use it to purchase a first home there are two schemes offered by the government to help first time buyers save for a deposit, both of which pay a bonus on contributions made to the account.  These are the Lifetime ISA (available from April 2017) and the Help to Buy ISA (available now until 30 November 2019).  Note parents looking to help their children buy a first home cannot open a Lifetime ISA or Help to Buy ISA on their behalf, but could gift them the money to open an account.

The two options are compared in the table below:

 

Lifetime ISA

Help to Buy ISA

Eligibility

Age 18-39 and UK resident

Aged 16+ and UK resident

Type of ISA

Investment/stocks and shares

Cash

Contribution limits

£4,000 a year until age 50

£1,000 on account opening then £200 a month, to a maximum lifetime limit of £12,000

Government bonus

25%

25%

Maximum Government bonus

£1,000 a year until age of 50

£3,000 total

Bonus paid

At the end of the tax year but can be paid in-year when a home purchase is made

When the saver purchases a home

Maximum property purchase value

£450,000 – restricted to UK residential property

£250,000 rising to £450,000 in London.

Transfers in from previous years' ISAs?

Yes

No

For the 2017/18 tax year only, a Help to Buy ISA (including the government bonus) can be transferred into a Lifetime ISA.

Full withdrawal conditions

Minimum holding period of 12 months before withdrawals to include the government bonus can be made for a home purchase or retirement.

Money can be withdrawn at any time but not replaced in the same month.  No fee for withdrawal but loss of bonus

Partial withdrawal conditions

Partial withdrawals allowed but government bonus is lost and a 5% charge will apply.

No withdrawal fee but loss of bonus

Important points to note are that stocks and shares investments such as the Lifetime ISA should be considered long-term investments (five years plus).  Stock market based investments offer the potential for growth over the long term but fluctuate in value from day-to-day.  If you need the money in the short term, there is the risk that you will need to sell at a time when the investment value has fallen.  If the planned house purchase is in the short term keeping the money as cash provides security that the amount saved will not go down in value.

Any money invested in a Lifetime ISA that is not used to buy a first home can be accessed in retirement instead (after the age of 60).  Accessing the money at any other time will result in the loss of the government bonus and a 5% charge.  If money is withdrawn from a Help to Buy ISA for any reason other than buying a first home the government bonus will be lost.

Please note that the value of any tax benefits depends on your personal circumstances and is subject to change by the government.  All stocks and shares investments can go down as well as up in value and you may not get back the full amount invested. 

If you require personalised advice on saving for a first home please contact Richard Higgs, Chartered Financial Planner, on 0117 966 5699 or at richard.higgs@wealthwestmedical.co.uk.  We can also refer you to our mortgage broker if required.

 

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