LISAs for first time buyers

I started thinking about buying a flat about a year ago in the beginning of 2019. Previously it seemed impossible and I simply accepted that I will always be renting.

However, my situation had changed. I wasn’t renting a room in a flatshare anymore. Instead, I had a blissful year of living together with my girlfriend (Pikachu) behind me.

After looking at our savings/investments, combined earnings and property listings online, we found out that we could actually buy something not too long down the road.

Currently we live in a Central London studio apartment paying £1,442 pcm in rent and it seemed that if we played our cards right we could end up reducing our living costs after buying a new home. This calculation took into account increased transportation costs, mortgage and service charges.

The decision to buy something was made. Now, we needed to save up for the mortgage deposit.

I had heard about Lifetime ISAs (LISAs) and remembered an article from Martin Lewis which said these were a no-brainer for first time buyers.

A LISA is essentially a savings plan with several bells and whistles. You can save up to £4,000 each tax year and will get a top up of 25% on your contributions each tax year (i.e. up to £1,000). Therefore, both of us opened LISAs with £4,000 each in February 2019 and got the full £1,000 bonus in 4-8 weeks’ time. Therefore, we had £10,000 in LISAs in 2018/19. I must caveat that my LISA was a Stocks & Shares LISA and the actual value fluctuates with the markets. Pikachu’s LISA was a cash LISA.

There are some criteria to open LISAs and restrictions to how and then you can make withdrawals. To begin with you need to be below 40 years of age to open the account. You can use the LISA pot to buy a home if you are a first time buyer (people who have inherited or have been left property in trusts don’t qualify), the new home must be priced at less than £450,000 and must be bought with a mortgage. You can make tax-free withdrawals after age 60 but if withdrawals are made earlier for any purpose other than first time property purchase you need to pay a 25% penalty on the withdrawn amount. Lastly, the account needs to be open for a calendar year before you can use it towards your home purchase.

That last point is important. If you have already found something and are already in the process of buying then opening a LISA to get an extra grand isn’t going to work. You need to open the account now to start the clock. Therefore, I’d encourage everyone who plans to buy their first home to open the account now with a small deposit – say £1 or £10. You can add more later when you are more serious about buying. This will set you up to benefit from the LISAs and will most likely make you a few thousand pounds.

Back to my story. April 6th and therefore the new 2019/20 tax year came around quickly and I added another £4,000 into my LISA. Pikachu did not contribute at that time as she wasn’t convinced about us making it to the 1 year LISA anniversary (however it was palatable to suffer the exit penalty on the first £4,000 she contributed). She thought we’d find something sooner and didn’t want to pay the 25% penalty.

I however took the risk as my friends and colleagues told me that buying in London can take many months. We agreed if we get close to the 1 year LISA anniversary and have not bought yet, then Pikachu will add another £4,000 into her LISA. That ended up being exactly what we did.

We found a property in August, agreed to buy it and appointed layers etc. However, things are taking ages and at the end of January 2020 it seems we are no closer to a completion date than we were in August 2019.

If you have done the maths, we have now received 4 lots of £1,000 bonuses with the LISAs and “made” £4,000 so far. If things with our property purchase drag on, then we will probably get another 2 bonuses in April/May 2020.

Anyway, it’s been a good idea to use LISAs and you should too if you’re in a similar position to us.

Why FIRE?

The aim of this blog is to document my journey towards reaching early retirement. I’m 31 years old. I think I’m relatively far from my goal but am confident it’s possible. It’s not so much of a question of if it will happen but more of when it will happen (at least that’s what I tell myself).

My main motivation is to have the freedom to do what I want. At the time of writing, I’m driven more by the away-from rather than towards motivators. I have a job which is going OK but I feel that it isn’t quite what I want. Unfortunately, I’m unsure of what it really is that I want to do with my life when it comes to working. As a result, it seems to be a good idea to experiment and try out various things/experiments (such as this blog) and see where it takes me.

In my free time, I like to spend time with my friends and girlfriend, read books, travel, run/train and dance – nothing too exciting. I guess once I attain FIRE, I will do more of the above.

You probably have an idea of what FIRE is all about, so I’m not going to start my lecture just yet. The gist of it is that I plan to build enough wealth, which will support me financially without me needing to rely on employment to keep the lights on and food on the table.

You might be asking yourself, why should you read my stuff? I could be a random troll on the internet. Well, I enjoy the occasional trolling as much as the next guy. However, on a more serious note, I’m a Chartered Financial Planner and a Chartered Wealth Manager. My academics include a Master’s degree in Statistics and my favourite colour is blue. I hope that’s enough for now.

As you may have guessed the name WealthPlanner comes from building enough wealth to retire and from one of my work qualifications.

Let the WealthPlanning begin!