Chancellor George Osborne has announced a new savings scheme in his Budget speech which will allow Britons under 40 to save up to £4,000 a year towards a deposit for a new home.
The Lifetime ISA will allow anyone younger than 40 to put away up to £4,000 a year until they are 60. For every £4 people save, the government will give them back £1, a bonus of up to £1,000 a year.
Osborne said that it will allow people to save for a new home or retirement. It will be launched in April next year and those with a Help to Buy Isa will be able to transfer their funds into it. Alternatively, you can continue saving in both, but you will only be able to use the bonus from one to buy a house. The Help to Buy ISA is due to end in 2019.
The savings and the bonus can be used towards a deposit on a first home worth up to £450,000. Accounts are limited to one per person, so two first-time buyers can both pair up and double their bonus.
The current ISA limit will also go up next year from £15,240 to £20,000.
Richard Sexton, director of e.surv chartered surveyors, said: “Although the Help to Buy ISA has proven popular, many are finding it increasingly difficult to save. The new lifetime ISA has the potential to increase savings ability – but the average deposit in January stood at £28,393.
“By this measure it would take an individual first-timer six years in order to save this amount. On the Help to Save scheme it would take 32 years. And across these timeframes, house prices will keep on climbing across the country. Time is not a luxury that first-timers wanting to move to start a family or settle into a new home may have.”
Carol Knight, chief operations officer of the Tax Incentivised Trading Association, welcomed the introduction of the Lifetime ISA.
She said: “The introduction of a Lifetime ISA, with its generous government contribution of £1 for every £4 saved up to an annual limit of £4,000 per person, will help younger people to save for the long term. It is great that they will be able to transfer savings from a Help to Buy: ISA to the new Lifetime ISA from 2017, or continue to save into both.
“This builds on a policy that our savings and investments policy project has been calling for as a means to encourage more people to save whilst also trying to buy a house. Individual accounts mean that two first-time buyers can benefit when buying a property together.
“Overall, the Lifetime ISA is a great help towards retirement saving, however, we are a little disappointed that early withdrawals will incur a 5% levy and would like greater clarification on this point.”
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