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Lifetime ISA's Explained

Khalid Ichaoui
28 Jun

If you're reading this blog post, we assume you're well aware of the challenges involved in saving for a home deposit. Let's face it, that's probably why you're here on Jrny's site, right? Unless you're an exceptionally savvy renter who fully grasps the connection between the 'Equity Contributions' in the Jrny plan and property appreciation, chances are you're just as clueless as we were when we first set out to buy a home (by 'we,' we mean one member of our team—hi, Gio!).

Buying a home is no small feat, especially for first-time buyers! Fortunately, there are a few tools that can make life a bit easier, such as the first homes scheme, shared ownership, and perhaps the strongest tool of them all, the Lifetime ISAs. In this blog post, we'll delve into the world of Lifetime ISAs, explaining what they are, how they work, and how they can help you build a deposit.

So, what exactly is a Lifetime ISA? 

A Lifetime ISA (LISA) is a type of individual savings account available to UK residents aged 18 to 39. It offers tax-free savings with the goal of providing financial support for two purposes: buying a first home or saving for retirement. The key advantage of a LISA is that the government provides a generous bonus on top of the money saved.

How does a Lifetime ISA work? 

To open a LISA, you must be between 18 and 39 years old and a resident of the UK. You can contribute an annual maximum of £4,000, and the government will pay a 25% bonus on top of these contributions. This means that for every £4 you save, the government will add £1 as a bonus, up to a maximum bonus of £1,000 per year. The savings can be made either as cash or stocks and shares, and you can only use it if you’re buying a home worth no more than £450,000.

One of the primary benefits of a LISA is its potential to accelerate the process of building a deposit for first-time homebuyers, and that’s where the LISA really shines! Let’s take a look at an example: the average house price in the UK is around £260k, according to Nationwide's latest HPI. If you can access a 95% loan-to-value (LTV) mortgage, you'd typically need to scrape together a £13,000 deposit. However, by using a Lifetime ISA and earning a maximum bonus of £3,250, you would only need to save £9,750. This can save you months, if not years, in building a deposit for your first home.

If the benefits of a Lifetime ISA have piqued your interest, you’re probably wondering where to get one. There are a number of financial institutions such as banks, building societies, and investment firms that offer a variety of Lifetime ISA accounts that could potentially meet your needs. Always make sure to compare and consider account management fees, interest rates, investment options (if you opt for a stocks and shares ISA), and service quality before making a decision*. 

Where does Jrny come into all of this? 

You don’t have to choose between a Lifetime ISA and Jrny. The Jrny plan allows you to rent your dream home with a 2% contribution and build up to 10% equity over an 8-year lease. As such, you don’t lose your first-time buyer status and can continue paying into your Lifetime ISA to benefit from the government bonus and only use it when you’re ready to buy the home from Jrny. This could mean you have more equity at the end, or you can exit the Jrny plan earlier, provided you do so after 2 years.

So, there you have it—an overview of Lifetime ISAs, how they work, and their key benefits explained. We hope this post has been helpful in shedding light on this valuable savings tool. If you found this information beneficial, we encourage you to share it so that others can benefit as well. Together, we can help more people on their journey towards financial stability and achieving their homeownership dreams. 

*Please note: Jrny does not offer financial advice so please do seek independent financial advice before engaging in any of these schemes! 

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Khalid Ichaoui
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