Fidelity lifetime ISA (A 3 point guide)

In this brief guide, we will cover the Fidelity lifetime ISA, its unique features and what you can expect to gain from it. The Fidelity lifetime ISA is an ISA product which has the same framework as any other lifetime ISA product. This is because the UK government lays down the framework for all Lifetime ISAs. This includes the eligibility requirements and when you can claim any bonus.

NOTE: Fidelity doesn’t currently offer a Lifetime ISA product but has stated that it is looking to offer one soon.

A Fidelity lifetime ISA is a tax-free savings product which lets you put up to £4,000 in it each year and receive an annual government bonus of £1000 if you save the maximum £4000 per year. The annual government bonus you receive with the Fidelity lifetime ISA is 25% and this will be allocated based on your annual contribution to the Fidelity lifetime ISA.

The Fidelity lifetime ISA contribution limit of £4,000 counts towards your annual ISA contribution limit which is currently £20,000.

The Fidelity lifetime ISA can either be held in stocks and shares or cash. You will be able to make monthly contributions to your Fidelity lifetime ISA until you are 50 years old but may continue to earn interest or returns from your Fidelity lifetime ISA after this point.

You will then be able to withdraw from your Fidelity lifetime ISA when you:

Want to buy a house as a first-time buyer

If you are terminally ill with less than 12 months to live

If you are over 60 years old.

You can still withdraw money from your Fidelity lifetime ISA for any other reason but this but you will pay a 25% charge to do so.

To be eligible for a Fidelity lifetime ISA you will need to be a UK resident except you’re a Crown servant (for example, in the diplomatic service), their spouse or civil partner.

If you intend to buy your first home with the Fidelity lifetime ISA then your home will need to meet the following eligibility requirements. You will also need to be a first-time buyer and will likely need to sign a first -time buyer declaration stating the same.

the property will need to cost a maximum of £450,000

You will need to wait 12 months from the date at which you opened the Fidelity lifetime ISA for you to use it for a property purchase

Your conveyancer will be the person involved in claiming the Fidelity lifetime ISA bonus so you will need to use a conveyancer during your home purchase.

You will need to be purchasing the property with a mortgage

If you are buying a house with someone else they will be able to use their Fidelity lifetime ISA bonus aswell towards the property purchase but if they are not a first-time buyer then they will be required to pay the 25% withdrawal charge.

If you have used both the help to buy ISA and the Fidelity lifetime ISA then you will only be able to use the bonus from one as your conveyancer won’t be allowed to claim the bonus from both schemes.

You can transfer money from a Help to Buy ISA to a Fidelity lifetime ISA. If you transfer money from a Fidelity lifetime ISA to a Help to Buy ISA you’ll have to pay the 25% withdrawal charge.

The Fidelity lifetime ISA may be a suitable vehicle to use to save for retirement but you may also want to consider using other financial vehicles such as your pension, buy to let properties, peer to peer lending and a host of other options. You should seek independent financial advice before making up your mind about this.

If you are using the Fidelity lifetime ISA to save for retirement then you will of course benefit from the £1000 annual government bonus if you pay the maximum annual contribution of £4000.

You will be able to withdraw your savings from your Fidelity lifetime ISA when you have reached the age of 60. If you withdraw your savings before the age of 60 without any of the reasons above being met then you will have to pay the 25% withdrawal charge.

You’ll also pay a 25% charge if you withdraw money or transfer the Fidelity lifetime ISA to another type of ISA before 60.

If you die your Fidelity lifetime ISA ends on the date of your death. There’s no charge to withdraw the funds or assets from your account.

There are also other government schemes which you may be eligible for to help you get on the property ladder. Some of these schemes may be useful to increase your mortgage deposit whilst some others may simply reduce the cost of the property.

  • Help to buy ISA– gives a maximum bonus us £3,000 if you save the maximum allowed of £12,000. Before you get either you should consider which is better. Lifetime ISA vs Help to buy ISA.
  • Help to buy equity loan- gives you up to 40% as a 5-year interest-free equity loan. You begin to pay interest at 1.75 % after the fifth year and 1% plus RPI for every year thereafter.
  • Shared ownership- You can buy between 25% to 75% of the property initially with a shared ownership mortgage and then buy more using a staircasing mortgage.
  • Armed forces help to buy- similar to the help to buy equity loan but specific for the armed forces personnel giving them an increased chance of acceptance.
  • Rent to buy- This is the right to buy scheme on which this guide is currently discussing. A different marketing name is just used. Watch out for this when shopping to avoid missing out on eligible properties due to confusion.
  • Right to buy- allows you to buy your home at a discount price.
  • Preserved right to buy– same as above.
  • Right to acquire- same as above.

Depending on where you live, you may also be able to take advantage of home buying schemes provided by your local council. Example: In Norwich, the local councils provide the Norwich home options scheme.

Family deposit mortgages

Aside from the Fidelity lifetime ISA there other alternatives which are known more commonly as family springboard mortgages which you may be able to use to get on the property ladder.

Family deposit mortgage options such as the family springboard mortgage, include mortgages from lenders such as the Barclays family springboard mortgage, the lloyds lend a hand mortgage or the post office family link mortgage.

These mortgages resembler and almost behave like guarantor mortgages but they aren’t. You may still be able to find some guarantor mortgages which could reduce the strain of a mortgage deposit for you.

Aside from the family springboard mortgages your family members or friends could also simply gift you a mortgage deposit but not all mortgage lenders are keen on lending to borrowers who have been gifted their mortgage deposit and the ones who accept this may insists in a gifted deposit letter which ensures that the gift is indeed a gift and not a loan which may have some claim on the first charge mortgage if the mortgage lender ever had to reposssess the property.

If you need financial advice and you live in the UK then you could contact the Money Advice service over the phone or via chat for impartial advice.

You can also contact the debt charity “Step Change” if you are in debt and need help.