I’ve almost maxed out my Help to Buy Isa, should I swap it for a Lisa?

I have a Help to Buy ISA that was set up many years ago, but I’m now wondering whether I should use a Lifetime ISA or Lisa.

I’m not sure if I can transfer my Help to Buy ISA, which has £11,000 in it, into a Lisa straight away, or if this still needs to meet the annual payout limits.

If it is subject to the annual payment limits, I’m not sure whether I should transfer it or not, as there’s a chance I might want to buy a house within the next two or three years before I’ve transferred my Help to Buy ISA savings into a LISA.

I live in London and am likely to buy here, and I am worried that I will end up buying a property worth more than Lisa and the Help to Buy ISA’s purchase limit of £450,000.

If I plan to buy in a few years, should I divert my savings to another product to get better returns? I am afraid of losing money if I need to withdraw money from my ISA. MD, by email

This is Money’s Harvey Dorset responds: As house prices have risen significantly since you took out your Help to Buy ISA, you are no longer confident that you will be able to buy a home under the £450,000 limit in London or £250,000 outside the city.

The Lifetime ISA also imposes a maximum house price limit of £450,000, regardless of where in the country you buy it.

Although £450,000 is a lot of money, it doesn’t have the purchasing power it once had and is now below the average £450,446 spent by first-time buyers in the capital.

Switching to a lifetime ISA would benefit you by increasing the amount you can spend outside of London, where you can get significantly more for your money.

However, as you say, you are likely to buy in London. If you buy a property below the limit, Lisas also come with the benefit of much higher contribution limits than Help to Buy Isas, where you can only save £12,000 and receive a £3,000 bonus.

Since you’re almost at this limit, you’ll probably be able to save more in your ISA after making your transfer and getting extra help from the Government.

Problems arise when it comes to withdrawing your ISA funds if you intend to buy a property that exceeds the limit. While an ISA has its benefits, you will also be charged a penalty fee if you withdraw your funds, meaning you will lose some of your original stake.

Help to Buy Isas allow you to withdraw your money for free, meaning you only lose the Government bonus, so it might be worth taking note of this before committing to a Lisa.

We asked two experts what to consider before making the switch.

Brian Byrnes, personal finance director at Moneybox, answers: The Help to Buy ISA has undoubtedly helped thousands of first-time buyers boost their initial savings over the years. However, as of 2019, it is no longer accepting new applications and was replaced by the Lisa in 2017.

One of the main reasons for transferring from a Help to Buy ISA to a Lisa is the ability to earn significantly more government bonus on the Lisa over time. However, transfers from a Help to Buy ISA to a Lisa must comply with the Lisa’s annual payout limit, which is £4000.

As such, it would take you three tax years to transfer your existing funds into the Lisa, but you will get the 25 per cent government bonus when you make the transfer, whereas with the Help to Buy ISA the bonus is paid out at the time of purchasing the property.

At the moment, you’re very close to the maximum amount you can save in the Help to Buy ISA and still get the Government bonus, which is £12,000, giving a maximum possible bonus of £3,000. However, with the Lisa, you can keep saving £4,000 a year until age 50 and get a 25 per cent bonus.

So you could potentially get extra help from the Government towards your first home purchase on Lisa, but as you can only transfer over £4,000 a year, it would be the third tax year before you could add new funds (£1,000) to the account and earn further bonuses.

It’s also worth noting that a Lisa must be open and funded for 12 months before you can use it to purchase your first home, but given your time horizon, this doesn’t seem like it will be an issue.

The £450,000 property price limit is the other key consideration in your decision.

The Help to Buy ISA price limit is £250,000 across the UK and £450,000 in London. The Lifetime ISA price limit is £450,000 across the country. Moneybox, among others, has been campaigning for this limit to be raised in order to ensure the future of the Lisa for the next generation of would-be first-time buyers.

However, the key difference between the products is that if you decide to buy a house for more than that amount, you can withdraw the funds penalty-free from the Help to Buy ISA (although you won’t get the Government bonus). In contrast, with the Lisa you would lose 6.25 per cent of your own savings, plus the Government bonus.

You can mitigate this, as you say, by using a different product to save towards your home deposit, but you are unlikely to get a better return elsewhere, given the 25 per cent bonus available with the Lisa, which can also earn interest or be invested. This bonus makes the Lisa by far the best choice for those who are confident they will buy below the property limit, which remains the vast majority of Lisa savers.

In short, your time horizon and expected purchase price are crucial here and it is difficult to always be sure of these things many years in advance.

If you end up buying a property for less than £450,000, the prospect of earning more bonuses over time in the Lisa account may appeal to you. However, given its uncertainty and the fact that you can buy before earning an additional bonus in the Lisa account, it may be worth retaining the ability to withdraw money penalty-free from the Help to Buy ISA.

Guy Anker, director of Compare the Market, answers: While Help to Buy and Lisas may seem similar, there are some important differences worth bearing in mind. Help to Buy Isas were designed for people aged 16 or over looking to buy their first home, while Lisas can be applied for by adults aged 18 to 39 to help them save for their first home or retirement.

Although the Help to Buy ISA scheme is now closed to new applicants, you can continue to use it to save until 30 November 2029 if you already have an account and you should also be able to transfer funds from another ISA.

While you can transfer your savings from a Help to Buy ISA to a Lisa free of charge, any funds you transfer will be subject to your Lisa’s annual deposit limit, which is currently £4,000.

If you want to transfer more than £4,000 from a Help to Buy ISA to a Lisa, you will need to spread out the payments over a number of years so as not to exceed the annual payment limit. This could mean you have to wait a while before using your Lisa to buy your first home, which may not be suitable for someone looking to move forward with their purchase quickly.

It’s also important to note that Lisas have fees if you withdraw money from them before you turn 60 without using them to purchase a first home.

However, a Lisa mortgage could be more attractive than a Help to Buy ISA in the long term for first-time home buyers outside London.

With a Lisa you can save up to £4,000 a year and as long as you save this amount, as well as being able to afford the deposit and mortgage on the property, you could also receive an annual bonus of up to £1,000 a year.

This compares with an annual saving of up to £2,400 for a Help to Buy ISA and a maximum total bonus of £3,000. While you can have both a Help to Buy and a Lisa, you will only be able to claim one bonus to cover the cost of a new home. You must also wait at least a year after opening your first Lisa before using it for a new home.

When deciding whether to save with Help to Buy or Lisa, it is important to consider what best suits your circumstances and fully understand the advantages and disadvantages of both products. Comparing different offers online can be very helpful when selecting the right product for you.