Savers aged 18-39 will be able to save up to £4,000 per year in the LISA, with contributions topped up by 25% by the Government each year. The money in the LISA can then be used as a deposit on a first property, or held until retirement.
Martin Stewart, director of London Money, warned that the LISA is “like adding tinsel to a Christmas tree that you can’t see because it’s already covered in tinsel”.
He continued: “These products do not fix the embedded problems within the housing market which have been growing for years and yet no one has addressed them. Offering first-time buyers the chance to save a few thousand pounds extra in what is no more than a tax wrapper with a fancy mnemonic will not make a material difference. Besides, by the time they’ve saved enough up, the house price itself will have moved further out of reach because no one is fixing the underlying issue.
“The Help to Buy schemes helped 300,000 get on the property ladder, that was a direct solution to a clear problem which is not something I would necessarily call LISA.”
It doesn’t go far enough
James Mole, head of finance and mortgages at Nova Financial, said the LISA was an improvement on the Help to Buy ISA and would give first-time buyers a welcome boost.
However, he questioned whether it went far enough, pointing out that the deposit is only one sticking point for those looking to purchase a first property.
He continued: “The affordability stress test of residential mortgages has gone too far the other way after years of being too easy. The vast majority of the time people will pay their mortgages on time and lenders know this, but the FCA have made lenders scared to lend. I think this will ease off as we get further away from the last crash but it needs to happen faster.”
Increasing the savings cap
David Sheppard, managing director of Perception Finance, said there were “a lot of positives” with the LISA, but suggested the savings cap could be increased.
He said: “Personally I think it may have been better to have a higher limit but cap the government incentive at the £4,000 rolling amount. This would have allowed those who could invest more into it as they get older to have the opportunity to catch up on previous years where the £4,000 was not available.”
A question of choice
The LISA has come in for plenty of criticism, with the FCA insisting that providers flag up a number of potential risks, including the possibility that having one will damage an account-holder’s chances of securing certain benefits.
What’s more, while a number of investment firms have said they will offer LISAs, very few cash LISAs look set to be available from next week.
David Hollingworth, associate director of L&C, said this lack of choice would be problematic. He said: “If a first-time buyer is looking to buy within the next few years, then putting their money at risk with an equity investment won’t appeal.”
Hollingworth emphasised that it was important for brokers to be fully up to speed on how initiatives like the LISA work, so that they can point clients towards them if intermediaries believe it would help their buying prospects.
However, he added that generally borrowers would likely be “a fair bit down the road” towards building an appropriate deposit by the time they speak to a broker.
Sheppard added that the entire industry needed to increase its efforts in keeping borrowers informed about the range of options open to them.
He said: “The mortgage lending and broking community should do more to educate first-time buyers as to the availability of finance with a 5% deposit. I do believe there is still a perception that this level of deposit is not enough when in fact there are a number of lenders in this market now.”