The Help To Buy ISA scheme ended on November 30th 2019. This government saving scheme made owning a house a more realistic goal for so many first time buyers. It’s expected that, in 2018, 1.2 million people had opened these savings schemes and since then, banks reported a surge in people opening accounts closer to the deadline.
It’s expected that 256,000 homes, worth £44 billion have been bought using this government saving scheme, which boosted the deposit-pot for first time buyers by 25%, with a cap of £3,000, outside of London. Since this scheme has stopped, young people and first time buyers are worried it will take them even longer to save up to buy. With the average house deposit being £26,000, making the most of government incentives could make a whole lot of difference.
Here at Wizzcash, we know that everyone needs a little financial boost every now and again. We can provide payday loans in emergency situations, whilst the government saving schemes we’ve previously mentioned can be incorporated in your financial planning. We’re looking at what the end of the saving schemes will mean for you and how to maximise your savings moving forwards.
Can I Still Use My Help To Buy ISA?
After the deadline in November 2019, the Help To Buy saving scheme was no longer open to new applicants, as the government has designed new incentives to help put young people on the property ladder. Those who have already been contributing to their savings and have an open account can still claim their government contributions until the end November 2029.
As of a few days before the deadline in November 2019, the Government had paid out £320 million in ‘free money’ to help first time buyers. The government saving schemes were scrapped in favour of a Lifetime ISA scheme, but also because the older scheme is expected to have fuelled the rise in house prices, essentially nullifying the ‘free money’ you could get. Similarly, as the bonus money is not given directly to the buyer, there are a lot of critics that say the scheme has solely propped up the profits of large developers. This is supported by Persimmon’s housing developers, announcing for the first time that they earnt more than £1 billion last year.
Lifetime ISA Alternative
Unlike a help to buy, a Lifetime ISA (LISA) is not just a financial product for first time buyers. They are suitable for anyone aged between 18 – 39, but it can only be used in the buying of your first home or towards your pension. This means you can only claim the money when buying a property or after you turn 60.
This scheme is specifically set out to help young people, providing them with financial mobility. As some reports threaten that generation rent will be beholden to private landlords “from cradle to grave,” this scheme could help to bolster the income of those people after retirement, even if buying a property is never an option.
The scheme is simple, the government will pay 25% of what you save every year, capped at £1000 per annum. One of the biggest benefits of LISA saving schemes is that the bonus money will be added to your account each year. Whereas the Help to Buy alternative meant that buyers didn’t actually ‘see’ their bonus – it could only be used at the point of completion when buying a house, meaning it was normally paid directly to the sellers or used to cover solicitors’ fees.
Furthermore, the bonus money you do earn from a LISA is added to your account, meaning that you can still earn tax-free interest on this ‘free money’. Interestingly, there is a cap of £20,000 per account, which does fall short of the average £26,000 deposit for a house. Nonetheless, it is a great idea for how to maximise your savings.
Once you’re on the property ladder, you can still use LISA saving schemes to save for your retirement, too.
Can You Open A Lifetime ISA & A Help To Buy?
It is possible to have active Help To Buy and Lifetime ISAs. However, you can only claim the government bonus on one of them. It is likely that the bonus (over time) will work out more beneficial for the lifetime ISA, however, this will depend on how much money you have put into each account. Regardless, both schemes are ISAs. This means that you can still earn tax-free interest on your money.
Make Sure You Have Multiple Savings Accounts
Although there are obvious benefits to keeping your money in government saving schemes, it is also recommended that you have a ‘back up’ savings account. Adding to this alongside your LISA or Help To Buy could provide you with a financial cushion when something goes a little wrong, without incurring any fees.
If you need to take money out of your LISA, (before buying a house of turning 60), you will incur a 25% early withdrawal fee. YouInvest explains this cost as: For every £100 you withdraw (the £80 you put in plus the £20 bonus), £25 would be deducted and you’d only get back £75 – less than the £80 you put in. Therefore, having a separate savings account, preferably one that’s not a locked-in ISA, could help you avoid expensive fees that could damage your financial future. It could also mean you have the financial flexibility to avoid high cost short term loans and emergency loans, too.
Premium Bonds Are Another Option
Around 22 million people save more than £84 billion with premium bonds, issued by National Savings & Investments. They are a popular option for an auxiliary savings account, because you can access your money whenever you need to. You can also win cash prizes every month, from £25 – £1,000,000.
You are taking a risk with Premium Bonds, because there is no guaranteed return. Essentially, you enter a draw every month and the more you have invested, the more chances you have of winning. The money you get from Premium Bonds are also tax free, which makes them a flexible alternative to ISAs. Unfortunately, Premium Bonds do favour those who have got more money invested, because they have more chances to win, but the prize draw is completely randomised.
There are 3,420,702 opportunities to win the lowest sum of £25. For some, this could be more than the interest they would be able to earn in interest with a standard account. However, it does also mean that you have a 1 in 24,500 in winning £25 for every £1 you have invested.
Learning how to maximise your savings is an ongoing battle for the consumer, especially as new savings schemes are introduced all the time. In turn, it’s equally important to protect your credit score and make meet your financial commitments when you are looking to protect your financial future. This is because it could make applying for credit, such as a mortgage, more expensive in the future. Here at Wizzcash, we inform customers of how our 3 month loans could affect their credit score. You can find out more about how our loans work on our website, and get some top tips and financial insights on our blog.