If you’d like to own your own property, then the government is prepared to help you to achieve that. Through the Lifetime ISA (LISA) – launched back in 2017 – you can save £4,000 a year and the government will add 25%, so you’ll be given up to £1,000 as a bonus to save either towards buying a first property or towards a pension. These two are the only choices, and it must be said that LISAs are only for the under 40s, so there a few rules around them but that seems fair enough.
The good news for investors, however, is that they are tax efficient and you can invest in shares within a LISA. With that in mind, these are my top tips for making the most of a LISA to get on the property ladder.
Taking the first step I myself am invested in a LISA, so can speak from experience on how I think it will help me get on the property ladder. When an average London house deposit is around £80,000 according to Nationwide, getting all the help you can to achieve the dream of property ownership is sensible, as it will in all likelihood be many years before the average person could save a deposit of this size.
The first step is to find a provider, and if you are an investor then make sure it’s one that allows for share dealing. Also, bear in mind that the longer you invest, the more chance you have of accumulating dividends. This results in compounding benefits (i.e. building dividend income up over a long timeframe) and provides the opportunity for your LISA to build up value from what you invest in and from the money you put into it.
The best time to start is now because you don’t necessarily have to decide to invest your money in the stock market right away, you can have it as cash for when you have decided what shares to buy.
Investing in FTSE 100 companies So when you have a LISA up and running, the next step is to put the money to use. As the money will likely accumulate over quite a number of years, I think a lower-risk approach is the best one and my tip would be to invest in stable FTSE 100 companies. Look for companies that offer dividend yields of 4% or 5% or sometimes higher, are market-leading, have strong management teams and strong balance sheets.
Compared to AIM shares and other alternative investment choices such as Bitcoin, I think FTSE 100 shares tend to offer investors a nice halfway house between the safety but lack of growth one would get from cash, and the riskiness but potential higher growth of alternative investments.
When it comes to using a LISA to get on the property ladder, my advice is to get started as soon as possible… and if you wish to achieve investment growth on the money you and the government add, then I think it’s best to focus on investing in FTSE 100 shares.
Motley Fool UK 2019