According to a survey from Atom Bank, almost half said they are very reliant on the 25% bonus of the Lifetime ISA in their plans to achieve homeownership.
Nearly half – 47% – said they felt that the £4,000 annual limit for the Lifetime ISA was too low and should be raised, and 59% said the early redemption charge should be lowered or eliminated completely.
Currently, savers can save £4,000 per year into a Lifetime ISA, with a 25% bonus applied to the sum saved each year up to a maximum of £1,000.
A withdrawal charge of 25% is applied if you withdraw cash or assets for reasons other than buying a first home, being aged 60 or over or being terminally ill with fewer than 12 months to live.
The Treasury Select Committee said earlier this year that the Lifetime ISA may need to be split into two separate products, one that supports first-time buyers and the other that encourages long-term retirement savings.
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At the time, it said the property price cap will not be changed until the Lifetime ISA was evaluated.
ISA reform is firmly on the cards, with Chancellor Rachel Reeves reported to be looking at lowering the overall ISA savings limit from £20,000 or abolishing cash ISAs.
This has been greeted by criticism from the mortgage industry, especially the mutuals sector, which argues that abolishing cash ISAs or changing the limits could make mortgages more expensive, as they are used as a source of funding. ISA reform is expected to be announced in the Autumn Budget later this year.
Chris Storey, chief commercial officer at Atom Bank, said: “Reforms of the Lifetime ISA are long overdue. With rising house prices and ongoing affordability issues, the Lifetime ISA risks being left behind, which is particularly troubling given the number of savers who are reliant on it to build a sufficient deposit.
“At a time when many are struggling to save and get on the property ladder, we should be developing products that make it easier for people to grow their hard-earned savings and buy homes. This is a key part of encouraging economic growth and prosperity.
“The fact that some first-time buyers could be penalised for accessing their Lifetime ISA has been well-documented, so hopefully areas like the £450,000 limit are addressed as part of the broader conversation on ISA reforms in the coming months.”
