THERE are few who would be keen to clean their roof gutters this spring with an unstable ladder missing its first rung.
And it would appear the government’s ongoing incentive to protect the housing market ladder are taking the next stage with the lifetime ISA (LISA).
The average house price in Northern Ireland now stands at £125,480 (a long way from the high in 2007 of £224,670 and the low of £97,428).
Whilst some lenders will allow a 5 per cent deposit on a first purchase, the hurdle jumping is considerable and so many have to settle for 10 per cent. If we add in solicitor fees, arrangement fees and survey fees the first time buyer is over £15,000 away from moving in through the door, and putting a set of cutlery in the drawer.
This is exacerbated for the university student arriving clogged with a student debt around their ankles.
The housing market is an unnatural economy in some respects but it is a barometer on which certain economies thrive and are built upon. Rising house prices equals “equity” which creates confidence and the ability to borrow, which is spent, feeding into the wider economy and so on.
Faced with a wobbly ladder, the government had introduced the help to buy ISA and the LISA is a step further on.
It works as follows: From this April, if you are aged between 18 and 40, you can save up to £4,000 each year until your 50th birthday and receive an uplift of a 25 per cent bonus (£1,000 per year if paying the maximum £4,000) from the government.
I’m not sure how many graduates, let alone non-graduates who will be in a position to save £4000 per year after tax, so I see this very much as a method for parents to assist their children with annual lifetime gifts to them, to place them ‘on the ladder’.
The money can be saved until the ‘child’ is aged 60 and then used for any purpose or it has to be used only to buy a first home pre 60, otherwise you lose the tax bonus you have received, plus a 5 per cent charge.
If, however you are diagnosed with a terminal illness pre 60, you can access the money with no penalty.
Couples buying a property can both apply for, and use a LISA, which will be paid direct from the LISA provider to the conveyancer.
If you consider one of the better cash savings accounts available is offering 4.95 per cent, a 25 per cent immediate bonus dwarfs this into insignificance so as a method of saving for the house purchase it would seem to be an opportunity not to be missed.
We could argue easily that the workplace pension with its tax break and employer contribution, create a greater uplift, but they will limit access to the cash for much longer.
A maximum contribution of £4,000 per year for 15 years would have created a 25 per cent bonus of exactly what is needed to pay the starting costs above of £15,000 – a nice feeling to know the government have paid that for you.
I’m unclear why the government have offered this lifetime ISA so soon after the help to buy ISA, but there are some pointed improvements:
:: With the LISA you aren’t limited to cash and given its name (lifetime), you are able to invest into stocks and shares;
:: You can open an account after 2019, unlike the help to buy ISA;
:: The bonus is paid each year allowing growth on the bonus as opposed to when a house is purchased;
:: Maximum contributions are £116,000 more than a help to buy ISA.
Those are the key differences, but, just like the pension column last week, we should be just as alert to the choice of funds for where our ISAs are invested.
The difference between the better and more consistent performing funds can be extreme and the apathy that tends to exist with longer term investments doesn’t need to cost the earth as we mentioned last week.
ISAs, like pensions, can easily be transferred between managers to access the better performing funds as well as the lower charging options.
:: Peter McGahan is the owner of independent financial adviser Worldwide Financial Planning, which is authorised and regulated by the Financial Conduct Authority. For a free, no obligation initial chat about your individual finances, call Darren McKeever on 028 6863 2692, email dmckeever@wwfp.net or visit us on www.wwfp.net. Follow us on Twitter: @WorldwideFP.
