Latest / Merryn Talks Money / Using a Lifetime ISA to Get on the London Housing Ladder

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Using a Lifetime ISA to Get on the London Housing Ladder · Merryn Talks Money

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  Speaker 1: Bloomberg Audio Studios, podcasts, radio news. Welcome to Meren Talks
• 0:20
  Speaker 1: Your Money, the Personal Finance edition of Maren Talks Money
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  Speaker 1: and these bonus podcasts we talk about the best strategies
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  Speaker 1: for making the most of your money. I'm Maren's Upset
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  Speaker 1: web and with me senior reporter and money distilled off
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  Speaker 1: for John Steppegg Hi John, Hi, melm don you know
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  Speaker 1: I find doing making these episodes. I realized that you
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  Speaker 1: know you and I we we started in personal finance, right,
• 0:39
  Speaker 1: this is our natural home talking about its and mortgages
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  Speaker 1: and savings and all that kind of thing. We rather
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  Speaker 1: like it, and we're getting lots of interesting questions from people,
• 0:46
  Speaker 1: so we we know what people really want to hear
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  Speaker 1: about it. Maybe it's just iss ices and more isis?
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  Speaker 2: Isis semib be important?
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  Speaker 1: Yeah? Right, this week we are answering yes an I
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  Speaker 1: a question from Jack. Now it's quite and I'm not
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  Speaker 1: going to read the whole thing out, but the gist
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  Speaker 1: of it is this, Jack is in his late twenties.
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  Speaker 1: He's been putting the maximum allancers into a Stocks and
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  Speaker 1: Shares lifetime I set each year since it started in
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  Speaker 1: twenty seventeen. We're going to explain to her lifetime ier
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  Speaker 1: is in a moment, So don't turn off now because
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  Speaker 1: you don't know. He's been doing it with the intention
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  Speaker 1: that it would help him by his first home and
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  Speaker 1: just worked out quite as he expected. He's still renting
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  Speaker 1: in London and now he's wondering whether the LYSA, the
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  Speaker 1: Lifetime I sair really makes sense to him as the
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  Speaker 1: primary way for him to save for a house. Now
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  Speaker 1: his question, final question is do you think it's worth
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  Speaker 1: continuing to put money in or not? So first things first,
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  Speaker 1: a lifetime I said, do you want to explain lifetime?
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  Speaker 1: I said, John, al shall explain a lifetime I said.
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  Speaker 2: Basically, you can get one if you're eighteen and under forty.
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  Speaker 2: You put up to four grand a year in it,
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  Speaker 2: and the government will I mean they discribe it as
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  Speaker 2: a twenty five percent boys, but what they're doing is
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  Speaker 2: giving you your basic t expike. So if you put
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  Speaker 2: in four thousand pounds, that gets topped up to five thousand.
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  Speaker 2: Now the tricky thing here is there's basically two purposes
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  Speaker 2: to a lifetime ISA. You can either take the money
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  Speaker 2: out to pay the deposit on your first house, which
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  Speaker 2: is what Jack is thinking about doing. But the problem
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  Speaker 2: there for anyone living in London is that the house
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  Speaker 2: can be worth no more than four hundred and fifty
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  Speaker 2: thousand pounds. The other thing you can do with it
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  Speaker 2: is you can leave it until you're sixty and then
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  Speaker 2: you can take the money out and you don't pay
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  Speaker 2: any income tax or a couple of gains tax or anything.
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  Speaker 2: Same as we are traditional iSER. If at any point
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  Speaker 2: before that you take the money out, you have to
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  Speaker 2: give back the basic great tax relief, plus the government
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  Speaker 2: takes a six point twenty five percent penalty on top.
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  Speaker 2: That's it. That's what a lifetime ISA is. It's a
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  Speaker 2: slightly complicated hybrid product which may not necessarily end up
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  Speaker 2: satisfying anyone. But we can talk about that.
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  Speaker 1: And you have to be careful about it, by the way,
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  Speaker 1: because the way John just explained it is excellent. If
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  Speaker 1: you read about it on any of the websites, or
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  Speaker 1: indeed on the government website, it will say when you
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  Speaker 1: put money in you get a twenty five percent bonus hurrah.
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  Speaker 1: If you take it early or anything like that, a
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  Speaker 1: twenty five percent charge will apply, leaving you possibly believing
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  Speaker 1: that the cash that goes in and the cash that
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  Speaker 1: comes out as a penalty is the same, which it
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  Speaker 1: absolutely isn't. And if you scroll down on the government
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  Speaker 1: website you can see them giving a little example of
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  Speaker 1: how this works. So, assuming no growth, initial savings of
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  Speaker 1: eight hundred pounds will earn a twenty five percent government
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  Speaker 1: bonus of two hundred pounds and give you a part
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  Speaker 1: of one thousand pounds. If you wish to withdraw the
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  Speaker 1: entire port, a twenty five percent charge will apply to
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  Speaker 1: the four thousand pounds. See what they've done there. You
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  Speaker 1: think it's the same, don't you. You're wrong. You'll have
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  Speaker 1: to pay a government withdrawal charge of two hundred and
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  Speaker 1: fifty pounds. This will leave you with seven hundred and
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  Speaker 1: fifty pounds, so less than you put in, and therein
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  Speaker 1: lies a large part of the problem with this product.
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  Speaker 1: One more thing, John doesn't say that I'm going to
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  Speaker 1: add in. There are three reasons you could withdrew it.
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  Speaker 1: If you're buying your first home under four hundred and
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  Speaker 1: fifty thousand pounds. Of course, if you are sixty or over,
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  Speaker 1: that's quite important keep that number sixty in your head.
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  Speaker 1: Or if you are terminally ill and have only twelve
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  Speaker 1: months to live and can somehow prove that you have
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  Speaker 1: only twelve months to live, then they will give it
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  Speaker 1: back to you. So here we come to the question.
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  Speaker 1: You're putting money in, You're putting in your four thousand
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  Speaker 1: pounds a year, you're getting your thousand pounds back from
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  Speaker 1: the government. It's building up our question. A jack has
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  Speaker 1: been doing it? How many years did he say? Seven years?
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  Speaker 1: So maybe he's got yeah, so maybe if he's got
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  Speaker 1: a little bit of growth, maybe he's got forty thousand
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  Speaker 1: pounds in there now right, Yeah, not much when you're
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  Speaker 1: thinking about buying a house in London with the starters,
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  Speaker 1: and if he's thinking of buying over four hundred and
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  Speaker 1: fifty thousand pounds, which sounds like he is, is it
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  Speaker 1: worth continuing to pay me? My answer is no, my
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  Speaker 1: instinctive answer before we get into the details, what's your
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  Speaker 1: instinctive answer?
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  Speaker 2: Jump, Then it's sympathetia, because four hundred and thirsty Susan
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  Speaker 2: Poonds is going to say, like, not Stanning, when who's
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  Speaker 2: less than to this, say to the southeast the outleage
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  Speaker 2: fostained by a home in London. Accordingly, Hampton's sold for
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  Speaker 2: four hundred and forty seven thousand poems. Actually they're here.
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  Speaker 2: That's the average FoST tamed by a home. The average
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  Speaker 2: house is course at their weight war half a million,
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  Speaker 2: So it's a genuine restriction and it's also a totally
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  Speaker 2: arbitually they won't So I don't actually even understand why
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  Speaker 2: there's a not a limit or in the preace of
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  Speaker 2: the host that you can buy with us, you know,
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  Speaker 2: because there's a contribution limit. The money's there, So why
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  Speaker 2: does it matter tell exactly what place the hostsh you're
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  Speaker 2: buying for it.
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  Speaker 1: Well, but I can tell you exactly why, because it
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  Speaker 1: would look terrible in the Daily Mail or anything like that.
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  Speaker 1: If someone bought a two million pound house using using
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  Speaker 1: a lifetime I said, they'd be like, that's a terrible press.
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  Speaker 1: That's a bad look. Of course this is also a
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  Speaker 1: terrible look. There are so many different different products available
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  Speaker 1: to help people buy their first home from well not
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  Speaker 1: need more, but help to buy and all this kind
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  Speaker 1: of thing. I never understood where the lifetime I saw
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  Speaker 1: was introduced in the first place. Now we should say
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  Speaker 1: that if you're outside London, if you're outside London, first
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  Speaker 1: time by presses are lower. I've actually got numbers. What
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  Speaker 1: numbers were you using?
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  Speaker 2: Well, I used Hamptons, but zup was Samuel.
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  Speaker 1: Yeah, no, I'm the ones I'm looking at Toil broadly
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  Speaker 1: similar to the average price of a home across the
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  Speaker 1: UK as well, under three hundred thousand pounds two hundred
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  Speaker 1: and sixty something depending on where you are, and if
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  Speaker 1: you buy somewhere very cheaper Liverpool County Durham apparently very cheap.
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  Speaker 1: I mean, you know, one hundred and fifty thousand pounds
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  Speaker 1: average first time buy. So you know there are places
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  Speaker 1: where this makes sense, where it really does make sense.
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  Speaker 2: You're right. It's if you can't use the lfestime isser
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  Speaker 2: to buy a house, then the Kina popposite is going.
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  Speaker 2: I mean, I do remember when it was introduced. There
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  Speaker 2: was a cent that and I remember was writing about
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  Speaker 2: this at the time that perhaps George Osborne was hoping
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  Speaker 2: to move the whole pension system over an ad isis
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  Speaker 2: in some way.
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  Speaker 1: Oh god, I remember that. Yeah, yeah, I'd forgotten about that.
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  Speaker 2: Oh so that came before but exit and then everything
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  Speaker 2: you know, changed and it.
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  Speaker 1: Wasn't and I forgot about it.
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  Speaker 2: Everything twenty pnepore. But yeah, but I think I think
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  Speaker 2: that was it, and so it's like, can a stalled
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  Speaker 2: long tail effort to shift the entire pension structure in
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  Speaker 2: some way?
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  Speaker 1: Okay, well, let's look at it from that point of view. Then,
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  Speaker 1: So let's say that Jack is never going to buy
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  Speaker 1: a property that costs under four hundred and fifty pounds.
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  Speaker 1: Let's also say that the government is never going to
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  Speaker 1: put up that cap. I mean, it feels very unlikely
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  Speaker 1: that would happen. At the moment. The conversation is all
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  Speaker 1: about reducing caps on everything, reducing the managing put in
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  Speaker 1: an icer, Reducing the manager can have a nice for
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  Speaker 1: over a lifetime, reducing the manager can have a pension,
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  Speaker 1: et cetera, et cetera. That's the conversation. So it seems
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  Speaker 1: very unlikely that this government is suddenly going to turn
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  Speaker 1: around and say lifetime. I say, oh, let's make that
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  Speaker 1: a million. Just what going to happen? Is it?
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  Speaker 2: The only thing I would say is I wouldn't take
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  Speaker 2: any action till after told the startlist, because the one
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  Speaker 2: area is that this says really too housing and it's
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  Speaker 2: related to first time bios. So the one thing I
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  Speaker 2: can either there's a say, chines that may be vitual
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  Speaker 2: beefs and whatever can only potential wheeze they come up
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  Speaker 2: with for juice in the housing market if they do,
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  Speaker 2: could maybe be connected to the lifetime So I would
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  Speaker 2: maybe I wouldn't like, I wouldn't take all my money
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  Speaker 2: of piny credect like that until after the budget.
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  Speaker 1: No, no, no one's going to rush and take their
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  Speaker 1: money out. No one's suggesting that. Just about whether you
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  Speaker 1: should put anymore in. So if you've got it in already,
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  Speaker 1: you don't want to take it out, right, You don't
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  Speaker 1: want to take it out because you'll you'll have to
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  Speaker 1: pay that penalty, So you don't want to do that.
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  Speaker 1: So you're going to leave it in, right, You're not
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  Speaker 1: going to take it out to buy a first home.
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  Speaker 1: Then it stays in until you're either about to die
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  Speaker 1: or your age sixty. So some people might say, well,
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  Speaker 1: it's a perfectly good pension backup, right, why not get
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  Speaker 1: a little money in there as well as in your
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  Speaker 1: pension because it's basically the same. You'd get back to
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  Speaker 1: twenty percent. Right, if you're a lower rate tax pay
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  Speaker 1: if you're a higher rate tax payer, obviously it makes
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  Speaker 1: no sense you should put money into your pension instead,
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  Speaker 1: But if you're a lower rate tax bakup pair doesn't work.
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  Speaker 1: To keep going toributing, I'd say, well, it's much of
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  Speaker 1: a muchness, but it comes with this difficult bit, which
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  Speaker 1: is you can't take it out until you're over sixty
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  Speaker 1: and at least with your actual pension you can take
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  Speaker 1: it out that world is it now? It's going to
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  Speaker 1: be fifty seven, isn't it. Maybe it'll end up with
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  Speaker 1: sixty as well. I don't know. That could easily be
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  Speaker 1: one of the things that comes out from from this
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  Speaker 1: budget or another budget that the current rate at which
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  Speaker 1: you can take a private pension is too low. But
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  Speaker 1: nonetheless that's the difference that makes sense.
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  Speaker 2: I mean, yeah, you can see that can play. A
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  Speaker 2: person needs me go up and tell it's sexty at
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  Speaker 2: some point as well. But it's going to take them
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  Speaker 2: what we wail to get there, you would think at
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  Speaker 2: the colbon piece.
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  Speaker 1: So basically it seems like the upsot of the answer
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  Speaker 1: to this question is probably don't take it out, Probably
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  Speaker 1: don't put any more in and max out your pension
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  Speaker 1: into that if you can. If that makes sense, John.
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  Speaker 2: I think that makes sense. I mean, I suppose the
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  Speaker 2: only aditation for pool Jack is that less is where
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  Speaker 2: are he'd stuck his hose and depose it? And if
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  Speaker 2: he's built up neither no forty or forty five grand
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  Speaker 2: in there, it's kind of like we they, well, actually,
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  Speaker 2: how how are you going to square that sout go?
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  Speaker 2: Because if you don't have a housing depots, abilt up
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  Speaker 2: somewhere else, then you know that's the only money that
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  Speaker 2: you're going to be able to use for it. And
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  Speaker 2: I think that then becomes a somewhat trickier question.
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  Speaker 1: God, John, I haven't thought of that, Jack, I feel
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  Speaker 1: like it.
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  Speaker 2: Sorry, but I'm thinking, well, so what what is he
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  Speaker 2: going to do? Because if this was your source of
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  Speaker 2: savings for your house, I mean, the only thing I
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  Speaker 2: can think of, and this is like, you know, not
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  Speaker 2: that helpful, is you need to try and find somewhere
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  Speaker 2: that's like under four hundred and fifty grind.
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  Speaker 1: You know that Jack, Jack is going to have to.
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  Speaker 2: Move to Liverpool, nice place.
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  Speaker 1: I'm getting very I hope you've got to work at
• 10:45
  Speaker 1: working from home deal and your contract.
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  Speaker 2: Jack see another.
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  Speaker 1: The great problem? So is Jack allowed to buy a
• 10:54
  Speaker 1: country cottage with it? Oh?
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  Speaker 2: Yes, once it's under four hundred and fifty.
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  Speaker 1: Yeah, so he doesn't Actually does he have to live
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  Speaker 1: in it? If he buys a house with his lifetime isaaid,
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  Speaker 1: does he have to live in the house or can
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  Speaker 1: he but elsewhere and rent it out? Oh?
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  Speaker 2: No, no, no, no, you have to live in it. Yeah, yeah,
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  Speaker 2: have to living it and you have to have a
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  Speaker 2: standard payment water gage.
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  Speaker 1: You also can't use it if you're buying money from
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  Speaker 1: a parent, yeah, or another relation or someone you're in
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  Speaker 1: a civil partnership with where your spouse or any relatives
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  Speaker 1: of your pouse or civil partner. Quite limited, isn't it. Yeah?
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  Speaker 2: And you can't use it on a shield on set
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  Speaker 2: properly either. So you mean you could as long as
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  Speaker 2: the property is both west than four hundred and thirsty thousand.
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  Speaker 2: I mean not that would command that anemy also say
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  Speaker 2: other issues, but but yeah, so now, I mean there's
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  Speaker 2: actually quite respective when people living in London, which actually
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  Speaker 2: does see one fear.
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  Speaker 1: Do you know? I would say that George Osborne, Oh
• 11:45
  Speaker 1: is Jack an apology? Yeah, and maybe the rest of
• 11:49
  Speaker 1: us for various other things. But we'll come to that
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  Speaker 1: later another podcast, Right, anything to add to that?
• 11:57
  Speaker 2: They No, I think we've we've subtly done that one.
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  Speaker 1: Okay, and apologies Jack's are not being able to come
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  Speaker 1: up with an actual solution to your problem, assuming that
• 12:10
  Speaker 1: is where you have been saving your deposit money and
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  Speaker 1: you have no other deposit money, and why would you so.
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  Speaker 1: Our apologies to you for George Osboyne's terrible policy. Thank
• 12:23
  Speaker 1: you for listening to this week's Marin Talk to Your Money.
• 12:25
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• 12:40
  Speaker 1: w and John Underscore Steppe. This episode was produced by
• 12:44
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• 12:47
  Speaker 1: by Moses and