FTBs can save a deposit in as little as 3 years with a Lifetime ISA

New research from easyMoney looked at the first-time buyer market and highlighted how long prospective homeowners around England and Wales can save a deposit when using a Lifetime ISA.

Related topics:  Finance,  Property,  Deposit,  FTBs
Property | Reporter
13th February 2024
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"Not only is a Lifetime ISA a great way to get your savings to go further thanks to the annual government top-up but so long as you don’t use your whole pot for a deposit, it’s also there for you to keep saving for later life"
- Jason Ferrando - easyMoney

easyMoney has looked at the first-time homebuyer market in England & Wales to calculate how much of it is affordable to first-time buyers using a Lifetime ISA to save for their mortgage deposit, based on Lifetime ISA rules around maximum annual savings allowed, and the buying budget threshold. easyMoney has then gone on to analyse how long it would take to save a deposit in each area of the nation with the help of a Lifetime ISA.

What is a Lifetime ISA?

A Lifetime ISA is a savings account designed to help people buy their first home, and put money aside for later in life. You must be aged between 18 and 40 to open a Lifetime ISA account, and you can put in up to £4,000 each year. This money will count towards your annual personal allowance of £20,000, and the UK government will top up your account with 25% of your annual savings, up to a maximum of £1,000 each year.

If you empty your account to make a home purchase, the account is closed. But if you only use a portion of your savings for your property purchase, you can keep the account open and keep adding up to £4,000 a year until the age of 50. This is designed to help people save for the later years of their life.

When it comes to buying your first home, Lifetime ISA savings can only be used towards a property valued at £450,000 or less.

Lifetime ISA affordability

With this maximum budget in mind, what proportion of the national housing market do first-time buyers have access to with their Lifetime ISA savings?

Of 318 local authority districts across England and Wales, only 16 have an average first-time buyer house price of more than £450,000. This means that 302 local authority districts are within budget for a Lifetime ISA buyer, which is equivalent to 95% of the national market.

Additional analysis by easyMoney shows that, over the last 12 months, 78% of all transactions to have completed across England & Wales came in below the £450,000 threshold.

But how long would it take to accumulate a large enough mortgage deposit when investing the maximum £4,000 a year, and then benefitting from an additional £1,000 top-up each year from the government?

How long does it take to save a deposit?

Across England & Wales, the average first-time buyer home costs £224,122. If saving towards a deposit of 15% (£33,618), and saving £5,000 a year with a Lifetime ISA and the government’s top-up, it will take an average of 6.7 years to accumulate the required amount.

It takes the longest time to save a deposit In London, where the average first-time buyer home costs £436,413 which equates to 13.1 years of saving.

But in the London local authority district of Brent, where the average first-time buyer price is £448,808, the saving timeline extends to 13.5 years.

Saving to buy with a Lifetime ISA in the South East takes 9.1 years, followed by the East of England (8.5), South West (7.8), and East Midlands (6.1).

Buyers in the North East are looking at the shortage regional saving timeline of just 4.1 years due to a regional average first-time buyer house price of just £135,708.

But on a local authority level, it’s Burnley that offers the nation’s shortage-saving time frame. An average first-time buyer price of £94,013 means saving a 15% deposit will only take 2.8 years for those making the most of their Lifetime ISA.

Jason Ferrando, CEO of easyMoney says: “With house prices refusing to fall at any notable rate - despite the forecast of many an industry expert - first-time buyers are facing a tough task getting a foot on the ladder.

"Not only is a Lifetime ISA a great way to get your savings to go further thanks to the annual government top-up but so long as you don’t use your whole pot for a deposit, it’s also there for you to keep saving for later life.

"However, a lot of people will have no choice but to max out their Lifetime ISA savings to get on the ladder, so when it comes to saving for later life they’ll need to look at other options.

"There are great Lifetime alternatives out there, including the ever-popular Cash ISA. But if you’re looking for the strongest return, Innovative Finance ISAs are your best bet due to offering an average annual rate of between 5.53% - 7.51%.”

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