Martin Lewis, a well-known money-saving expert, has shared a clever trick to help people get on the housing ladder with just £1. By opening a Lifetime ISA (LISA) and putting in £1, the clock starts ticking towards the first-time buyer bonus. This bonus can be used towards a deposit when the time comes to buy a property.
How does the LISA work?
LISAs are designed to assist individuals in saving for their retirement or their first home. The government provides a 25% bonus on the amount deposited, meaning that if the maximum of £4,000 is contributed, an additional £1,000 is received for free. The LISA can also be used in the event of terminal illness with less than 12 months to live. The account can be opened with any bank, building society, or investment manager, but the individual must be between 18 and 40 years old. Contributions can be made until the age of 60.
Using the LISA for a first home
If the LISA is being used to purchase a first home, there are a few rules to keep in mind. The price of the property cannot exceed £450,000, and the property cannot be rented out or used as a holiday home. Individuals who have a Help to Buy ISA can transfer it to a LISA, but they will need to make higher monthly contributions to receive the full £1,000 government bonus. This is because the maximum monthly contribution for a Help to Buy ISA is £200.
Using the LISA for retirement
If the LISA is being used for retirement, the money can be withdrawn at the age of 60 or older. However, withdrawing the money before this age, without using it to purchase a qualifying home, incurs a withdrawal fee of 25%. For example, if there are savings worth £800 and a government bonus of £200, the total amount in the LISA would be £1,000. If the money is withdrawn early and the withdrawal fee is applied, the individual would be left with £750, losing both the government bonus and £50 of their own money.
Martin Lewis has emphasized the effectiveness of the £1 trick, stating that some individuals have received thousands of pounds through this strategy. By taking advantage of the LISA, potential homebuyers can start saving for their deposit and benefit from the government bonus.
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