Many are unaware, according to an expert (Image: coldsnowstorm via Getty Images)
One of the greatest challenges facing many prospective buyers is accumulating a sufficient deposit to secure that crucial first step onto the property ladder. Once rent, bills and various other outgoings have been accounted for, there is frequently very little left for would-be buyers to put aside for their deposit.
To compound matters further, Patricia Ogunfeibo, founder and non-practising solicitor at tenant2owner, a free resource for first-time buyers, says a considerable number of people are unaware that they can receive just over £83 a month for free from the Government via HMRC through the lifetime ISA, or LISA.
She said: “I’m still shocked by how many aspiring buyers are simply unaware that the Government will contribute to their deposit through the LISA. There’s free money available and far too often it’s just not being taken.
“In a recent survey commissioned by HMRC, 37% of people who were eligible for a LISA had never heard of it. In other words, nearly four in 10 people who could open one didn’t even know it existed and that’s really worrying. It also suggests the Government has failed to do enough to promote this valuable way to save.”
Through the Lifetime ISA, first-time buyers can set aside up to £4,000 a year towards a deposit and, for every £4 saved through the scheme, the Government contributes £1.
Patricia Ogunfeibo (Image: Patricia Ogunfeibo/Newspage)
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“The impact this top-up can have on people’s ability to buy should not be underestimated,” said Patricia. She continued: “For many people, it will significantly increase what they are putting aside each month, and that can get them to their target deposit far sooner. Which means they get the keys to their first home far sooner.
“Effectively, the government is giving people up to £1,000 in free money each year towards their deposit and yet many just aren’t aware that this support is available. Only last week I was speaking to another first-time buyer who had no idea it existed. And even if people have heard of it, they often don’t understand how to take one out or the way it works. There’s a lot of confusion.”
Patricia explained that savers could open a LISA either as an interest-bearing cash LISA or a stocks and shares LISA, whereby their funds are actively invested. First-time buyers can use the money tax-free towards purchasing a property worth up to £450,000.
The LISA is available to UK residents between the ages of 18 and 39, who are permitted to contribute as much as £4,000 per tax year until they reach 50. While multiple LISAs can be opened, contributions can only be made into one account per tax year.
Savers must also remain mindful that a 25% penalty is imposed should funds be withdrawn for any purpose other than by someone aged over 60, or to purchase a first home, effectively stripping away the tax-free bonus entirely.
Patricia explained: “Many people turn to their parents, grandparents and even friends when trying to grow their deposit, but the one friend many aren’t turning to is the one called LISA.
“LISA can be a massive help for those first-time buyers who may not qualify for a 100% loan-to-value mortgage or who are uncomfortable about getting one due to fears of negative equity.”
