In a Budget Special edition of the Martin Lewis Money Show, financial expert Martin Lewis highlighted an important opportunity for potential homeowners born between 1985 and 2006.
Lewis urges everyone born between these years to put £1 into a Lifetime ISA as soon as possible.
What is a Lifetime ISA?
A Lifetime ISA (LISA) is a government-backed savings scheme designed to help young people save towards their first home or retirement. For individuals aged 18 to 39 who have not yet purchased a property, a LISA could be a beneficial tool in planning for a future home purchase, particularly properties up to the value of £450,000.
How Does a Lifetime ISA Work?
Eligible savers can contribute up to £4,000 annually into their LISA, and the government will add a 25% bonus to the savings, up to a maximum of £1,000 per year. This arrangement can continue each year until you reach the age of 50. However, to get started, you must open your account before turning 40.
Martin Lewis pointed out the strategic benefit of opening a LISA with just £1. This minimal initial deposit starts the clock on the account, meaning it begins accruing the time needed to qualify for the government bonus after one year, without requiring a substantial initial investment.
The Flexibility of LISAs
One of the attractive features of the LISA is its flexibility. While the account requires a year to start generating the bonus, the funds don’t need to remain in the account during that time. Savers can choose when to deposit within the year to maximise their returns closer to when the bonus is applied.
What If You Change Your Mind?
It’s important to note that withdrawing funds from a LISA for reasons other than purchasing your first home or retirement comes with a 6% penalty. This means if you initially deposit just £1 and decide later that the LISA isn’t right for you, the financial risk is minimal (a loss of 6p).
Who Can Benefit?
This information is particularly relevant for those born between 1985 and 2006, as outlined by Martin Lewis. If you’re in this age group and planning for homeownership, it’s worth considering opening a LISA. You don’t need to commit large sums immediately but starting early with even a small amount can set you up to take full advantage of the scheme later.
Final Thoughts
If you’re considering a Lifetime ISA or have questions about how it might fit into your financial planning, consulting with a financial advisor can provide tailored guidance suited to your individual circumstances.