Lifetime ISA vs Help to Buy ISA: Which is best for you?
Lucy WilmottFor those saving for their first home, having a Lifetime ISA or Help to Buy ISA can make things that bit easier. In this article, we’ll take you through the main differences between the two accounts, and why you might select one over the other.
Withdrawals from a Lifetime ISA for any purpose other than buying a first home (up to a value of £450,000) or for retirement (60+) incur a 25% government penalty, meaning you may get back less than you paid in.
Key takeaways
- Availability: Help to Buy ISAs are closed to new applicants. If you don't already have one, the Lifetime ISA (LISA) is your primary option.
- Higher limits: LISAs allow you to save up to £4,000 per year with a 25% bonus (max £1,000 per tax year), compared to the Help to Buy monthly limit of £200.
- Property price: A LISA can be used for homes up to £450,000 nationwide. Help to Buy is capped at £250,000 outside of London.
- Withdrawal rules: LISAs have a 25% penalty for non-eligible withdrawals, whereas Help to Buy allows you to withdraw your own contributions penalty-free.
- Time constraint: You must have a LISA open for at least 12 months before you can use the bonus to buy a home.
Boost your savings by 25% for free
With a Lifetime ISA, you can save up to £4,000 per tax year and earn a free 25% government bonus on your savings. Plus, with the Tembo Lifetime ISA you'll earn 4.52% AER (variable) on your cash.
What’s the difference between Help to Buy ISA and Lifetime ISA?
The key differences between a Help to Buy ISA and a Lifetime ISA come down to four things: how much you can pay in, when the 25% bonus is credited, the property price cap, and the fact that the Help to Buy ISA closed to new savers in 2019.
Both ISAs are designed to help first-time home buyers get on the ladder by boosting their savings for a house deposit. With the average UK house price at approximately £300,000 as of 2026, and typical deposit requirements ranging from 10-20%, these savings schemes can significantly accelerate your path to homeownership as the government boosts your savings by adding 25% to whatever you contribute.
With a Help to Buy ISA, you can only pay in up to £200 each month after an initial £1,200 deposit, so the absolute most you can add in one tax year is £2,400. In return, the government tops up your savings by 25% – but the bonus is capped at £3,000 overall.
For a Lifetime ISA, this is up to £4,000 per year, so that you can receive a maximum bonus of £1,000 each tax year. You can contribute until you're 50, after which your account remains open for you to use when buying your first home or retiring.
With a Help to Buy ISA, there's a cap on the property price you can purchase, as you can only buy a home worth £250,000 or less in the UK, or £450,000 or less in London. Whereas with the Lifetime ISA, you can use it to buy a home worth up to £450,000, regardless of whether it’s within or outside London.
First-time buyers can calculate how much money they could put aside each month with the Take Home Pay calculator.
While both ISAs can help you save for a deposit, they're just one piece of the puzzle. If you're finding it challenging to save enough or borrow what you need, Tembo offers several solutions designed to increase your borrowing potential and work with your unique financial situation.
Help to Buy ISA no longer open to new savers
The Help to Buy ISA is now closed to new customers - so if you don't already have one, you'll want to consider opening a Lifetime ISA instead. It closed to new customers on 30 November 2019, but existing holders can keep paying in until 30 November 2029 and must claim the government bonus by 1 December 2030.
Open or transfer to the market-leading Cash Lifetime ISA
With the Tembo Cash Lifetime ISA, earn 4.52% AER (variable) on your savings - that's hundreds more in interest vs saving with the closest competitor! Plus, as a Tembo saver you’ll get fee-free access to our award-winning mortgage service*.
Lifetime ISA pros and cons
Pros
You can save up to £4,000 a year in it - tax-free
The government will boost your savings by 25%
Deposit the full £4,000 in one go or add it gradually throughout the year
You can use it to buy a home worth up to £450,000, anywhere in the UK
The government bonus is paid into the LISA monthly, meaning you’ll earn interest or investment returns on the government’s top-up as well as your savings
Cons
Must be aged between 18-39 to open one
The £450,000 property limit may not work for buyers in very high-cost areas
You need to have the account open for at least a year before you can use it to buy a home
Withdrawing money for anything other than your first home or retirement triggers a 25% charge - that’s an effective loss of 6.25% on the cash you originally put in
Tax treatment depends on individual circumstances and may be subject to change in the future
Lifetime ISA vs Help to Buy ISA - which option is right for you?
For those considering whether to open a Lifetime ISA or a Help to Buy ISA, the best option is a Lifetime ISA, as the Help to Buy ISA is now closed to new customers. So if you don't already have one, the Lifetime ISA is your go-to option.
If you're wondering whether to switch your current Help to Buy ISA to a Lifetime ISA, the answer depends on your unique circumstances and homeownership goals. What works well for one person may not suit another. Here are a few questions for you to consider when deciding whether to move your Help to Buy ISA to a Lifetime ISA:
Can you contribute more than £200 a month?
If you’re able to save more than £200 a month, it may be worth switching your Help to Buy ISA to a Lifetime ISA since you can save up to £4,000 a year in it. That’s the equivalent of £333 a month, though you can deposit more money in some months and less in others.
Do you want to purchase a home worth more than £250,000 outside of London?
Switching from a Help to Buy ISA to a LISA can also be a smart move if you want to buy a more expensive property. With a Help to Buy ISA, you must buy a house worth £250,000 or less if you want to buy outside of London. Whereas the Lifetime ISA property limit is £450,000, no matter where you are in the UK.
Do you want to buy a home in the next year?
If you’d like to buy within the next year, stick with your current Help to Buy ISA. You need to have a Lifetime ISA for a full year before you’ll be able to use the bonus towards your home.
If you’re unsure when you’ll buy your first home, you could open a Lifetime ISA now and put just £1 in it for the time being. This will start the clock and give you more time to decide what to do.
Is there a good chance you’ll need the money for something other than a home or retirement?
Another perk of the Help to Buy ISA is that you can withdraw your own money whenever you like and spend it on whatever you want. You could travel the world or buy a new car with it if you wanted - though you’d only be withdrawing your own contributions. With a Lifetime ISA however, you’ll be charged a 25% penalty on your withdrawal.
If you’re not sure whether you’ll buy a home and using the Lifetime ISA for retirement doesn’t appeal to you, you may be better off sticking with your current Help to Buy ISA.
Is a Lifetime ISA the right option for you?
Explore our range of competitive savings accounts designed for aspiring home buyers.
Alternative ways to get on the property ladder
If you’re able to save a deposit, using the Lifetime ISA or Help to Buy ISA can seem like a no-brainer, but with property prices on the rise, they might not be enough to get your foot in the door.
So, what are your other options? Well, we’re experts when it comes to alternative ways to get on the ladder, so you’re in the right place.
Deposit Boost
You may be able to increase the size of your house deposit even further with the help of your family. If your parents own their home, it may be possible to unlock money from their property and use it towards your deposit.
We call this a Deposit Boost. In short, it involves taking out two different mortgages. The first is taken out by your family member and releases equity from their home. This equity is then gifted to you to boost the size of your deposit. Because of your boosted deposit, you can then take out the second mortgage with better mortgage affordability. But there’s no one-size-fits-all approach to this. There are lots of ways to go about it, which is why it’s a good idea to speak to one of our mortgage brokers.
What is Deposit Boost and how does it work?
Income Boost
For many first-time buyers, saving a deposit isn’t the only obstacle standing between them and homeownership. If your income isn’t high enough to secure the mortgage they need, an Income Boost mortgage could be the answer.
Also known as a Joint Borrower Sole Proprietor (JBSP) mortgage, an Income Boost lets you add some or all of a family member’s income to the mortgage. This will increase your borrowing potential and make it easier to buy the home you love. To learn more, take a look at our guide to mortgage affordability.
What is an Income Boost mortgage and how does it work?
Guarantor Springboard Mortgages
A family deposit boost mortgage, aka springboard mortgage, is a way to use a family member or friend’s savings without sacrificing their future goals. Here's how it works:
This type of mortgage varies from one lender to the next, but usually it involves your chosen helper putting their savings in a designated account for a set period of time.
Their money will then be used as security. This means that if you were unable to make your mortgage payments, the lender would be allowed to access your helper’s savings and use them to cover the missed payments. Thankfully, this is usually a last resort, and most lenders will explore other options with you first.
If you make all your payments on time, your helper will be able to withdraw their savings once the agreed term is complete. Their money will earn interest while it’s in the account, though the interest rate will vary depending on the chosen lender.
We can help you work out whether a springboard mortgage is right for you and help you find the right lender.
Shared ownership
Shared ownership is a popular choice for many first-time buyers, particularly in London and other parts of the UK where houses cost far more than the average person can afford.
Shared ownership is a government-backed scheme that makes it easier for first-time buyers to get on the property ladder by allowing them to part-buy, part-rent a property.
When buying a shared ownership property, you’ll usually put down a small deposit and take out a mortgage to cover the portion of the property you own. You’ll then pay rent to a developer or housing association on the remaining portion. This can be a much more affordable option than buying a house in the traditional way.
Over time, you’ll have the option to increase your shares in the property. This is known as ‘staircasing’ and could see you owning the property outright eventually. Eventually, you could own your home outright without any rent payments.
On average, Tembo customers boost their budget by £82,000
First-time buyers can discover how much they could afford by creating a Tembo plan. It's free, takes 10 minutes, and there's no credit check involved. Plus, you can see indicative mortgage interest rates and monthly payments.
*Fee-free mortgage advice is subject to eligibility; terms & conditions can be found here.
