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Help to Buy ISA or Lifetime ISA

Written By:
Myles Robinson - Expert Finance Advisor

Posted: Aug 8, 2022

Help to Buy ISA or Lifetime ISA

*UPDATE – The Help to Buy program is no longer available to new applicants. However, first-time buyers still have options. Read our guide to learn more about the help to buy ISA or lifetime ISA and earn interest while you save.

Customers often contact us to ask for help in deciding between a Help To Buy ISA and a Lifetime ISA to save money for their first mortgage deposit. These are both government-backed savings products that offer a 25% bonus. So how do you choose the right option for you to receive the maximum bonus?

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Lifetime ISAs Vs Help to Buy ISAs?

We have compiled the most important information for borrowers who are looking for the best way to save for their first house as first-time buyers as well as having the maximum bonus paid by the government scheme.

Contact us today for expert advice that is tailored to your situation. Or make an enquiry and we will match you up with one of our mortgage brokers.

All advice is provided at no cost and you are not required to purchase anything.

What is a Help to Purchase ISA?

A Help to Buy (H2B ISA) is a savings account for a first-time buyer looking to save for their first mortgage deposit. These accounts are available from many high-street banks and don’t limit customers to any one mortgage provider. No matter if you are interested in a specific property, you can open one at any moment.

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Quick facts: How to buy an ISA

  • To open an account, you need to have at least £1,200
  • First-time buyer savers receive a 25% bonus, on top of any contributions, from the government
  • The government can only give you a maximum bonus amount of £3,000 in total
  • The maximum Help to Buy ISA account balance can hold is £12,000
  • You can pay as little as £200 per month once your account is opened
  • You can withdraw money from your cash ISA at any time without incurring any penalty or withdrawal charge
  • Who can open a Help To Buy ISA?

    Anyone over 16 years old who lives in the UK and is a first-time buyer can open a government bonus help to buy ISA.

  • You won’t be eligible for a government bonus help to buy ISA if you have ever purchased a property before, even if it was a house purchase abroad.
  • You don’t have to be over the age limit and can still get help to buy ISA as an individual if this is not your partner’s first property purchase. You would have the help to buy ISA as individual savings account so you can still have the bonus paid for your mortgage deposit.

    Closed ISAs: Help us to buy them

    New applicants are no longer eligible for Help to Buy ISAs as of November 30, 2019.

    The benefits of the government bonus Help to buy ISA will not change even after the scheme ends, you can still add money to your ISA savings. New applicants may still apply for the government bonus before the date 30th November 2019.

  • Existing applicants will be able to access their H2B accounts and make payments into the ISA savings after the finishing date.Existing members can also transfer up to £4,000 from their H2B ISA funds to a Lifetime ISA.
  • Talk to an expert for more information on transferring your paid monthly tax-free savings. They will be able to talk you through information on a cash ISA, lifetime ISA savings and all other options. We will help you choose the best option for you.
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What is a Lifetime ISA and how can it help you?

A Lifetime ISA, a longer-term savings account, can be used for a variety of purposes including a first mortgage deposit and retirement. It offers a government-funded bonus similar to an H2B ISA, but its use isn’t limited to saving for a house. A larger amount can also be paid each year.

It also comes with different restrictions such as who can apply and when borrowers can access the funds.

Quick facts: Lifetime ISAs

  • You can either deposit a lump sum of £4,000 or make multiple payments over the course of a year to open your account.
  • A maximum contribution of £4,000 per year is allowed (subject to any other ISA payments).
  • You could receive an additional £1,000 per year from the government by adding 25% to your savings
  • To open a Lifetime Isa, you must be between 18 and 39 years old
  • You can keep topping up your account until you’re 50
  • Up to £32,000 in government bonus payments could be yours
  • You can use your lifetime ISA contributions for both mortgage and deposit payments
  • You may be subject to a penalty if you wish to access your funds in the first 12 months after setting up your Lifetime Isa.
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What are the conditions for withdrawing funds?

You can only use the funds to buy a house if the deposit has been secured. However, the account must remain open for at least one year before you can use it for property purchases.

When you turn 60, your retirement savings will be available. If you are terminally ill and have less than 12 months left to live, funds cannot be made available. If you withdraw funds for any other reason, you will have to pay 25%.

Who is eligible?

You must be between 18 and 39 years old and a resident of the UK to qualify for a Lifetime ISA. If you use it to deposit money, you will need to be a first-time purchaser. You can still deposit money into the account until you turn 50, regardless of the purpose.

If I am a first-time buyer, can I use a Lifetime ISA?

If you plan to use your Lifetime ISA funds to purchase a property, you must be a first time buyer. You must have had your account open for 12 months prior to purchasing the property in order to qualify for the government bonus.

Differences between Lifetime ISA and Help to Buy ISA

While they share many common features, Lifetime ISAs and Help to Buy ISAs have a few differences that can help you choose the right one for you.

These are some of the main differences:

Maximum ISA contributions

A Lifetime ISA allows you to contribute up to £4,000 per annum (though this is subjected to any other ISA contributions that you may have). Plus, the government will give you a 25% top-up on top of what you put in. You can also use the funds to fund your retirement if you choose not to put the funds towards your first mortgage deposit.

You can only make a contribution of up to £1200 to your Help to Buy ISA account when you open it. After that, you can only make a maximum of £200 per month. The maximum amount you can contribute is £12,000, and you will not be able to deposit any more than that once your house has been purchased.

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A Help to Buy ISA has more restrictions than a Help to Buy ISA, but if you are looking to buy a property in the next year, an H2B ISA might be the best choice, as you can use these funds with no penalty.

The Lifetime ISA is better suited to help your mortgage or deposit amount after 12 months, and avoid paying a penalty.

Can I get both a Help to Purchase ISA and a ISA for life?

We are often asked questions such as “Can you pay into a Help-to-Buy ISA and a ISA for life?”. The answer is yes.

While you can have both a Lifetime ISA or Help to Buy ISA, you can only use one for your first home purchase. If you choose to retire, however, you can still receive the 25% bonus on a Lifetime IISA for having previously used a Help To Buy ISA.

Can I transfer Help To Buy to a Lifetime ISA Savings Account?

Yes, you can transfer a Help to Buy ISA to a lifetime ISA.

You will still be eligible to receive the 25% bonus. When you transfer funds to a Lifetime ISA, you must keep within the £4,000 annual limit. If you have more than that in an H2B ISA, you will need to transfer it across multiple tax years.

Talk to an expert if your goal is to arrange a Help To Buy ISA transfer at the most favourable terms.

Help to Buy vs. Lifetime ISA: Which should you choose?

The Lifetime ISA bonus vs Help to Buy ISA bonus dilemma is dependent on your personal circumstances, including your reasons for saving, the length of your savings, your age, and many other factors.

If you’re looking to save money for a deposit over the short term, a Help-to-Buy ISA will be more suitable. A Lifetime ISA, however, is a better option.

A Lifetime ISA allows you to save for a year. It will allow you to pay £4,000 for the first year. An HTB ISA can only accept £1,200 as an initial deposit and £200 per calendar year. This would make it up to £3,400 the first year. A Help to Buy ISA only allows £2,400 per annum, while a Lifetime ISA is allowed to allow for £4,000.

While a Lifetime ISA can offer more substantial gains over a longer period of time, it also has more restrictive clauses that may lead to penalties for early withdrawals.

If your plans change, you may be able to transfer the Help to Buy ISA to a Lifetime ISA. Depending on your age, you could also open a Lifetime ISA only for retirement.

Even if you used an H2B ISA to deposit your first mortgage loan, this bonus will still be paid. However, a Lifetime ISA pays its bonus at year’s end, while the bonus for HTB ISA is payable at redemption.

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Get the best mortgage

Regardless of whether you choose a Lifetime ISA (or Help to Buy ISA), once you have enough money to make a deposit on your first house and received the government bonus, the next step is the same as any other mortgage application.

You don’t have to limit the number of lenders you can approach with a H2B ISA, or Lifetime ISA. We recommend that you talk to an all-of market advisor in order to find the best deals.

How big a deposit is required?

Many lenders will require a deposit a minimum 5%. Others may require 10%, 15%, or more depending upon your credit history, age, type and location of the property and how you earn your income.

The Help To Buy Equity Loan Scheme and A Help to Purchase ISA can be combined, which can help borrowers who have a minimum deposit of 5% to get on the property ladder.

You’ll get a lower deposit if your lender considers you a good fit. However, if you have a more complex profile, with more bad credit, the lender may ask for a higher deposit.

Talk to an expert for the best advice.

How big a mortgage can I afford to get?

Each lender will have its own opinions on affordability. However, most lenders will lend 4x your salary. Some will offer 5x. A few will even go up to 6x your annual earnings if the circumstances are right. The mortgage deposit will depend on the maximum property price.

Talk to an expert about ISAs right away!

Contact us today for more information or to make an enquiry.

Then, we’ll match you with the right expert for you. We don’t require you to purchase anything and there is no cost to you.

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