Chancellor urged to reform Lifetime ISA and Help to Buy ISA

• Reduce the Lifetime ISA withdrawal penalty to stop taking savers’ own savings
• Increase and equalise Lifetime ISA and Help-to-Buy ISA property price thresholds and review annually

Trying to take the first step onto the property ladder is a challenge for most new homebuyers, with the BSA Property Tracker Report regularly showing that saving for the deposit is one of the biggest barriers to achieving this dream.

Lifetime ISAs (LISA) and Help to Buy ISAs (HTB ISA) have already helped hundreds of thousands of first-time buyers on to the property ladder, by giving a 25% boost to their savings when they buy their first home. However, to ensure these schemes continue to be relevant to today’s and future first-time buyers, they must be updated and regularly reviewed.

Two critical changes are needed now:

1. Reduce the Lifetime ISA withdrawal penalty 

Currently if a LISA saver buys a home above the LISA property price limit, or if they need to access their savings for any reason other than to buy a home which may be necessary due to the effects of the rising cost-of-living, they pay a penalty withdrawal fee of 25%. This results in them not only forfeiting the Government bonus, but also a chunk of their own savings too.

Reducing the LISA penalty withdrawal fee to 20% would allow savers to retain all of their own savings, while still forfeiting the Government bonus.

For somebody who has saved £4,000 a year for five years in a LISA, the penalty for using their savings towards buying a house above the property threshold would be all the Government bonus of £5,000, plus an extra £1,250 of their own savings.

2. Increase and equalise Lifetime ISA and Help-to-Buy ISA property price thresholds and commit to review these every year

LISA and HTB ISA property price thresholds are different, which is not only confusing but also unfair for the savers who are subjected to much lower thresholds than others in the schemes. It also makes no sense that a lower threshold is applied to properties outside London for would-be first-time buyers who are saving in the HTB ISA (£250,000 outside London/£450,000 in London), whereas the threshold applied for those saving in a LISA (£450,000) is the same whichever part of the country the property is in achieving this dream.

Despite a 30% increase in house prices since LISAs were introduced, the thresholds on both schemes have remained unchanged.  This is preventing some first-time buyers’ from buying a home within the price limits.

Equalising the thresholds in the two schemes and increasing it to £550,000 across all regions, along with a commitment to review the thresholds on an annual basis, would ensure both schemes remain relevant for first time homebuyers.

Robin Fieth, Chief Executive of the Building Societies Association said:

“The Budget on 6 March is a great opportunity for the Chancellor to make small changes that would have a big impact for would-be first time homebuyers.

“The change to the withdrawal penalty that we are calling for was introduced on a temporary basis during the Covid pandemic and provided much needed support to consumers in that difficult time. That shows it can be done. I would urge the Chancellor to re-introduce this on a permanent basis, ensuring the spirit of these savings schemes, which is to encourage young people to start saving to buy their first home, remains intact.” 

Carol Knight, Chief Executive Officer at The Investing and Saving Alliance (TISA) said:

“The current LISA framework needs to better serve savers. Our recommendations seek to address the limitations and complexities within the system, fostering an environment where investing and the possibility of owning your own home is more accessible for all.

“Helping more people to start their financial journey in life with effective support through the LISA is a huge opportunity for the Chancellor.  Not only can implementing these reforms help more people make use of this scheme when looking to get on the property ladder but by making LISAs more flexible and attractive, we can also empower individuals to build robust retirement portfolios, enhancing their financial security in later life.”

Notes to Editors:

1. The Building Societies Association (BSA) represents all 42 building societies, as well as 7 of the larger credit unions. Building societies serve around 26 million consumers across the UK and have total assets of over £507 billion. Together with their subsidiaries, they have helped over 3.5 million families and individuals to buy a home with mortgages totalling over £375 billion, representing 23% of total mortgage balances outstanding in the UK. They are also helping over 23 million people build their financial resilience, holding over £370 billion of retail savings, accounting for 19% of all cash savings in the UK.  Within this, societies account for 40% of all cash ISA balances.
2. With all of their headquarters outside London, building societies employ around 51,500 full and part-time staff.  In addition to digital services they operate through approximately 1,300 branches, holding a 38% share of branches across the UK.
3. The  Investing and Saving Alliance’s (TISA) ambition is to improve the financial wellbeing of all UK consumers by working collectively with the financial services industry to deliver solutions and champion innovation, for the benefit of people, our industry, and the nation. We do this by working with our member firms to deliver practical solutions and devise innovative, evidence-based strategic proposals for government, policymakers and regulators that address major consumer issues.  TISA is a not-for-profit membership organisation and a trusted partner of key industry stakeholders in helping shape the future of UK financial services and the environment in which we operate. We have over 270+ member firms involved in the supply and distribution of savings, investment products and associated services. More here: https://www.tisa.uk.com/about-tisa/

    

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