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Are lifetime Isa mortgages a good deal for first-time buyers?

Could you find the best mortgage rates elsewhere?

Skipton Building Society has recently released nine new mortgage deals for first-time buyers, but there’s a catch – you must also hold a Skipton lifetime Isa to be eligible.

More than 120,000 people currently hold a lifetime Isa with Skipton, and it’s only these customers who would be able to apply for this new mortgage range.

There are 85%, 90% and 95% LTV products for two-year, three-year and five-year fixed rates.

Here, we take a closer look at the deals to see whether first-time buyers saving with a lifetime Isa can really benefit, and how the products compare to the rest of the market.

  • For personal, expert advice on buying you first home, call Which? Mortgage Advisers on 0800 197 8461. Alternatively, fill out the form at the bottom of the article for a free call back.

How do Skipton lifetime Isa mortgages compare?

Two-year fixed-rate deals

Comparing Skipton’s 90% mortgage to the rest of the market, we found that HSBC’s 2 Year Fixed Standard mortgage at 90% LTV offers the lowest initial rate of 1.79% for 25 months, reverting to 4.19% (APRC 3.9%). The deal is available for first-time buyers and remortgages and has a £999 booking fee.

While Skipton offers £500 cash back and zero fees, you’d still end up paying less with HSBC.

As for 95% LTV, the lowest initial rate is offered by Loughborough Building Society. Only available in England and Wales, its 2.79% initial rate reverts to 5.34%, and there’s a completion fee of £999 (APRC 5.1%).

While Skipton’s initial rate for the two-year 95% LTV mortgage is higher, taking Loughborough’s fees and higher SVR into account means Skipton offers the cheaper deal over the course of the mortgage.

The table below shows the rates for the Skipton two-year lifetime Isa mortgages.

Product LTV Initial rate SVR APRC Fees Cash back
2 Year Fixed Rate Mortgage No Fee for Purchase 90% 2.46% 4.99% 4.7% £0; free standard valuation £500 on completion
2 Year Fixed Rate Mortgage No Fee for Purchase 95% 3.53% 4.99% 4.9% £0; free standard valuation £500 on completion

Three-year fixed-rate deals

For a three-year fixed rate mortgage at 90%, HSBC’s initial rate of 2.14% for 37 months, reverting to 4.19%, with a booking fee of £999, has a 3.8% APRC.

Skipton offers a generous £1,000 cash back on completion and no fees, but you’ll be paying less with HSBC for the same term and LTV.

At 95% LTV, Family Building Society’s Family Mortgage has a 2.89% initial rate, which reverts to 5.04%. There are completion fees of £599, and the APRC works out as 4.7%.

Due to the initial rate being so low, this beats the Skipton 95% product for the same term, even though there are fees to pay and no cashback.

While there’s only 0.1% difference in the APRC, over the whole mortgage term that could make a big difference to how much you’re repaying.

Product LTV Initial rate SVR APRC Fees Cash back
3 Year Fixed Rate Mortgage No Fee for Purchase 90% 2.89% 4.99% 4.6% £0; free standard valuation £1,000 on completion
3 Year Fixed Rate Mortgage No Fee for Purchase 95% 3.69% 4.99% 4.8% £0; free standard valuation £1,000 on completion

Five-year fixed-rate deals

At 90% LTV, First Direct’s Standard Fixed Repayment mortgage offers a fixed five-year mortgage with an initial rate of 2.25%, which reverts to 4.19%. There’s a £490 booking fee, and the APRC is 3.3%.

This mortgage undercuts the Skipton five-year mortgage, even though it doesn’t offer cash back and there are fees to pay.

The cheapest five-year 95% LTV deal comes from Family Building Society, with a 2.99% initial rate that reverts to 5.04%. There’s a completion fee of £599, it’s only available in England and Wales, and the APRC comes out at 4.7%.

The APRC is slightly higher than the Skipton mortgage offer for the same term and LTV, so even though the initial rate is cheaper with Family Building Society, it may be worth going for the cashback offer and lower APRC with Skipton.

Product LTV Initial rate SVR APRC Fees Cash back
5 Year Fixed Rate Mortgage No Fee for Purchase 90% 2.79% 4.99% 4.3% £0; free standard valuation £1,000 on completion
5 Year Fixed Rate Mortgage No Fee for Purchase 95% 3.76% 4.99% 4.6% £0; free standard valuation £1,000 on completion

Should I get a Skipton lifetime Isa mortgage?

Check the terms

There are a few caveats to note with the Skipton lifetime Isa mortgage options.

Firstly, the rates include a 0.25% discount applied when you pay via direct debit. Most mortgage lenders require you to fill out a direct debit mandate on application,  so it paying this way will avoid considerably higher loan rates.

Secondly, if you’re thinking of taking out a five-year deal, bear in mind that there are early repayment charges, which you’ll have to pay if you want to move house and can’t port the mortgage.

With the Skipton lifetime Isa mortgages, you can overpay up to 10% of the original loan until 31 January 2024; above that, there are early repayment charges of 5% until 31 January 2020, 5% until 31 January 2021, 4% until 31 January 2022, 3% until 31 January 2023, 2% until 31 January 2024.

It’s also worth noting that these mortgage deals are only available through intermediaries, so you’ll have to apply through a mortgage broker.

Consider the cash back

The fact that there are no fees and a free standard valuation could be popular with first-time buyers, who are often strapped for cash after paying a lump sum for their deposit.

For this reason, the prospect of cash back can also seem appealing.

As you only receive the payment from Skipton on completion, you won’t be able to use it towards your deposit, but it could help pay for things like removal costs, new furniture or home improvements once you’ve moved in.

As an added bonus, Skipton pays extra cash back to lifetime Isa holders who go on to take out a Skipton mortgage for their first home. This cash back offer isn’t advertised on Skipton’s website, but the building society confirmed to Which? Money that the offer exists.

When comparing mortgages, you should consider whether things like cash back perks outweigh fees, initial rates and the APRC.

Compare customer service

Each year Which? surveys thousands of mortgage holders about their experiences with their providers. In our 2018 mortgage satisfaction survey Skipton earned an impressive customer score of 73%, leading us to name it a Which? Recommended Provider.

You can find out more in our Skipton Building Society mortgages review or find out how all the major lenders performed in our full guide to the best and worst mortgage lenders.

How much can you borrow?

First-time buyer mortgage lending is on the up, suggesting that affordability is improving.

While we found that mortgages were granted at an average multiple of 3.69 times the buyer’s annual salary, the Skipton lifetime Isa mortgages potentially offer a salary multiple of up to 4.75 times.

Whether you can actually borrow this much would depend on your individual financial circumstances, Skipton told us.

Are 85% LTV products helpful for first-time buyers?

Skipton also offers 85% LTV mortgages for each of its two-year, three-year and five-year terms, with initial rates of 2.30%, 2.64% and 2.69% respectively.

We haven’t included these in our detailed analysis as it’s questionable how applicable an 85% LTV would be to the majority of first-time buyers.

All of the alternative top deals we found for a 90% LTV mortgage beat these rates, meaning you’ll have potentially saved up an extra 5% deposit without getting a preferential rate.

First-time buyers should always try to build up as big a deposit as possible. But as these mortgages are to supposedly help lifetime Isa holders – a savings product which was made to help those struggling to get on the housing ladder – the number of people who will actually be able to raise a 15% deposit is likely to be limited.

Lifetime Isas only allow a maximum of £5,000 (including the government bonus) to be saved each year. So, if you’re buying a property worth £200,000, it will take at least three years to save up for a 15% deposit. The lifetime Isa product has only been around for about 18 months, as it launched in April 2017.

So, while the rates for 85% LTVs might look good, it’s questionable whether many people will be able to profit from them.

Help to Buy Isa mortgages

Help to Buy Isa holders could be in luck, too, as Yorkshire Building Society has also launched a range of mortgages specially geared up for those who save into any Help to Buy Isa with any provider.

There’s a 90% and 95% product for two-year and five-year fixed rates, all of which offer £150 cash back and have no product fees.

Fixing for two years means you can get a 90% LTV product with an initial rate of 2.26%, and an APRC of 4.4%.

At a 95% LTV, the initial rate is 3.27%, with the same cash back, and a slightly higher APRC of 4.5%.

Fixing for five years with a 90% LTV will mean an initial rate of 2.79%, and 4.2% APRC. At 95% LTV, there’s a 3.89% initial rate and 4.6% APRC.

These rates are slightly higher than the mortgages offered on the Skipton lifetime Isa mortgages, with less cash back.

What is a lifetime Isa?

A lifetime Isa is a tax-free savings or investments account that can be opened by anyone aged between 18-39.

The government adds a 25% bonus to whatever you save into the account – up to £1,000 a year, as you can deposit a maximum of £4,000 a year. You get paid this bonus monthly.

The money you save into a lifetime Isa can only be used either towards your first home or to spend on whatever you like in retirement when you reach the age of 60. You can also access the money if you’re diagnosed with a terminal illness.

Withdrawing money for any other reason will mean you’re charged a withdrawal penalty of 25% on the money you take out – this equates to losing more than just the government bonus, as you’ll also lose out on any growth on the money.

If you use a lifetime Isa towards your first home, the property can cost a maximum of £450,000 anywhere in the UK, and you must have held the account for at least 12 months before you can use the money towards your first home.

There are currently 12 lifetime Isa providers.

  • Find out more: lifetime Isas – our guide explains what each provider offers, with more details on how the lifetime Isa works.

Get personalised advice on your mortgage options

If you’re a first-time buyer and want help finding and arranging the best mortgage for your circumstances, a whole-of-market broker can give you expert advice.

For a free consultation, call Which? Mortgage Advisers on 0800 197 8461 or fill out the form below for a free call back.

Your home may be repossessed if you do not keep up repayments on your mortgage.

Which? Limited is an Introducer Appointed Representative of Which? Financial Services Limited, which is authorised and regulated by the Financial Conduct Authority (FRN 527029). Which? Mortgage Advisers and Which? Money Compare are trading names of Which? Financial Services Limited.

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