Martin Lewis urges Jeremy Hunt to fix ‘dead duck’ lifetime ISAs after savers fined £18.5m | Personal Finance | Finance

Martin Lewis is strengthening his call for Chancellor Jeremy Hunt to overhaul the Lifetime ISA in his Autumn Statement later this month.

Introduced in 2017, a Cash Lifetime ISA (LISA) is an individual savings account designed to help people save for their first home or retirement faster. People can save up to £4,000 a year in a LISA, after which the Government will add a 25 percent bonus of up to £1,000 to the savings.

There are, however, strict guidelines savers must follow to receive the bonus and avoid a penalty. For example, withdrawals can only be made to purchase a qualifying first house up to the value of £450,000, or for retirement after the age of 60. Otherwise, a 25 percent Government penalty is applied.

With the savings limits being frozen since 2017, the Money Saving Expert argued house price inflation is pricing savers out of the benefits of the scheme. Subsequently, he stressed the fines imposed on savers for purchasing a house priced above the scheme’s £450,000 limit is unfair.

Mr Lewis said: “There are rumours the Chancellor is looking to introduce new incentives to help first-time buyers. Yet the first port of call should be to fix the unfair scheme that’s currently in play. So I have formally contacted the Chancellor to urge him to make the system fairer.

“Many who have opened Lifetime ISAs (LISAs) with Government encouragement now have not only a dead duck product – where they won’t get the promised 25 percent boost – but one with a poisoned beak because they’re fined to get their money out.”

Mr Lewis said the “simple solution”, which could be put into immediate effect, is for a LISA holder purchasing a first-time property for more than the maximum house price, not to be fined.

He explained: “So, they lose the Government’s 25 percent bonus, but they get their own money and interest back.”

Mr Lewis continued: “The fine was originally put in place to stop people using LISAs for purposes other than what they were intended for. House-buyers aren’t doing that, so they shouldn’t be penalised; they should at least get back what they put in.

“A longer-term idea would be to link and backdate the LISA maximum to national or, better still, regional house price changes. So, those who open them have a legitimate expectation they will be able to use them to buy the type of house they’re considering.”

According to Money Saving Expert’s (MSE) research, house prices have increased by 33 percent since 2017, while the LISA £450,000 limit has remained the same.

In the 12 months to April 2023, average London first-time-buyer property prices were over £450,000 in 26 of its 32 boroughs.

Elsewhere, average first-time-buyer property prices have increased by more than 60 percent in some parts of Northern Ireland, the East and West Midlands, the North East and North West of England, Wales, and Yorkshire and the Humber.

In total, MSE found LISA savers have been charged £126.8 million – approximately £108.3 million of Government bonuses and approximately £18.5 million of their own cash – to access their savings since April 2017. In the last tax year alone (2022/23), MSE said savers were fined approximately £9.4 million.

Commenting on Mr Lewis’s calls, Brian Byrnes, head of personal finance at LISA provider Moneybox, said: “Aspiring first-time buyers the length and breadth of the country are likely holding their breath in anticipation of the Autumn Statement after recent reports that help may be on the way. And, there can be no doubt that support is needed, as it has become increasingly difficult to get on the property ladder recently.

“While challenging market and economic conditions persist, many of the solutions needed to address housing supply and barriers to entry are complex and will take some time to bear fruit.

“Therefore, we have been campaigning for the Chancellor to take some pragmatic measures in the upcoming Autumn Statement, to future-proof the Lifetime ISA which will bring tangible benefits and support to first-time buyers in the near term.”

Mr Byrnes said that while less than one percent of Moneybox LISA savers have been affected by the property price cap to date, if the price cap had kept pace with house prices since its introduction in 2017, it would currently stand at £607,000.

Mr Byrnes continued: “Thinking about the next generation of aspiring homebuyers who are just starting on what is a five to eight-year deposit-saving journey, we believe the price cap should be index-linked to house prices and subject to an annual review.

“This will provide some much-needed reassurance and peace of mind to LISA savers who live and work in some of the most expensive parts of the UK and ensure the product remains fit for purpose for all those who need it most, into the future.”

Moneybox has also been campaigning for the introduction of a penalty-free annual “Emergency Withdrawal Allowance” so that LISA savers are not penalised if they need their money in an emergency.

Mr Byrnes said: “The Lifetime ISA is a fantastic product that’s helped a whole generation of aspiring first-time buyers save and invest their way toward a deposit and it’s vital to build on this success, to ensure it continues to meet the needs of the next generation of home buyers.”

Chancellor Jeremy Hunt will deliver the Autumn Statement, which outlines the Government’s plans for the economy for the next fiscal year, on November 22.