How a LISA can boost your savings for your dream home

While lots of us would love to buy our own home, it can feel like a distant goal. But just how distant? 

To clear things up, the team at smart money app Plum have crunched the numbers to work out the amount of time it could take you to save for a deposit based on your salary.

Admittedly, their initial findings weren’t the most positive, with someone earning £30,000 having to save for 11 years to set aside £68,154 (the average house deposit for a first-time buyer in 2025, according to UK Finance) with a 4% interest savings account, and using the 50/30/20 rule to save.

The good news? First-time buyers in the UK can accelerate their savings by opening a Lifetime ISA (LISA).

Not only do LISAs often offer competitive interest rates as competitive as
standard savings accounts offered by banks, but you also get a 25% government bonus on annual contributions up to £4,000.

Yes, that’s free money! 

Plum ran a second batch of calculations to work out the impact of LISA saving on the time it takes to hit the average deposit, and things started to look much better… 

The long, slow road  

Before we take a look at how LISAs can notch your savings up a gear, time for some context… 

To calculate how long it takes to hit the £68,154 target without the benefit of a LISA, Plum took a range of salaries and applied some conditions.

First, they assumed the saver was following the 50/30/20 budgeting rule, which allocates 50% of income to ‘needs’, 30% to ‘wants’, and 20% to ‘savings’.

This imaginary person was also repaying a Plan 2 student loan, contributing the minimum of 5% into a workplace pension, and earning 4% of annual interest on their savings. 

Here was the estimated time by salary (take a deep breath…) – 

• £19,000 – 14 years and 11 months
• £25,000 – 12 years and 8 months
• £30,000 – 11 years and 4 months
• £40,000 – 9 years and 5 months
• £50,000 – 8 years and 2 months
• £70,000 – 6 years and 6 months
• £100,000 – 5 years and 1 month

Those numbers look somewhat daunting, don’t they? But now for the secret sauce. 

Taking the fast lane 

While they come with a range of conditions, LISAs are a powerful tool for many Brits saving towards their first home. 

Remember that sweet 25% government bonus? This applies to annual deposits of up to £4,000. 

So if you put in the maximum, you’d end up with £5,000. Nice!

With Plum, you’ll also receive a competitive 4.75% AER (variable) interest rate for the first year, including a 1.39% AER (variable) bonus. Both your bonus and any interest payments are free from tax.     

Tax treatment depends on your situation. The total 4.25% AER (variable) assumes you meet all eligibility conditions for the full 12 months. If you do not meet these conditions, you may receive a lower effective return.

To show how opening a LISA can speed your way to a deposit, Plum re-ran their calculations based on a saver paying £4,000 annually into a LISA (earning 4% interest plus the government bonus), with the rest put in a savings account earning the same rate.

As you can see, the timescales have shrunk significantly:

• £19,000: 12 years and 7 months 
• £25,000: 10 years and 7 months
• £30,000: 9 years and 8 months 
• £40,000: 8 years and 3-4 months
• £50,000: 7 years and 3 months 
• £70,000: 5 years and 11 months
• £100,000: 4 years and 9 months 

These numbers provide welcome proof that opening a LISA can dramatically reduce the amount of time it will take for you to save a deposit. 

Forecasts and illustrative charts are based on inputs and assumptions. They are not reliable indicators of future results, and actual returns may differ substantially. Plum is not a bank.

Forecasts and illustrative charts are based on inputs and assumptions. They are not reliable indicators of future results, and actual returns may differ substantially. Plum is not a bank.

Rajan Lakhani, personal finance expert and Head of Money at Plum, mentions some more points that are worth considering. 

‘It’s worth bearing in mind that these calculations are for a £68,154 deposit, but the deposit amount required to buy a home varies widely across the UK and depends on what level of deposit your lender asks for,’ he says. 

‘Some lenders will usually ask for at least 10% but some even offer a 5% mortgage for those in certain professions like teaching or healthcare.’

He also points out that your salary is likely to increase in the future, which could increase the amount of money you’re able to save.

In other words, what looked like an impossible goal might be much more achievable than you first thought.