As HM Treasury’s consultation over the terms of the First Time Buyer ISA closes today, wealth platform Moneybox warns that savers could lose thousands of pounds if plans to replace a monthly bonus with a single payout at the time of purchase are approved.
The platform wants the government to rethink its plans to scrap the Lifetime ISA (LISA) in favour of the first-time buyer version and improve the current product instead.
The LISA can be used to save for a first home or retirement and comes with a maximum monthly bonus of 25% of savings deposited, capped at £1,000 per year. However, under the government’s proposals, the monthly bonus would be dropped in favour of one bonus made when the saver is ready to purchase their home. The retirement element of the account will also be abolished.
According to Moneybox’s analysis, this would mean a typical 10-year saver would lose out on £3,606 in compound growth.
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Buying delays
Furthermore, a survey commissioned by the platform found that 71% of first-time buyers already think buying a home will take them longer than expected under the current ISA rules, driven by cost-of-living pressures and high rents.
The struggle to buy is forcing one in five buyers to delay having children, rising to 28% among 25-34-year-olds, while 19% are putting off retirement savings.
Meanwhile, proposed Treasury rules banning transfers from stocks and shares ISAs to cash versions as completion approaches to derisk their investment leave deposits exposed to market drops.
Rather than replacing the LISA with a third new product in 10 years, Moneybox is urging the Treasury to retain and evolve the LISA for future savers.
The platform calls for two targeted updates to future-proof the product: committing to an annual review of the £450,000 house price cap so it keeps pace with the market, and reducing the withdrawal penalty to 20% so savers never lose a penny of their own hard-earned money.
Brian Byrnes, director of personal finance at Moneybox, said: “First-time buyers are already finding it exceptionally hard to save enough to secure a favourable mortgage, with 71% watching their timeline slip and many forced to put major life decisions like starting a family on hold.
“The terms being considered for the new replacement product risk widening this deposit gap further.
“Rather than introducing a whole new product, the Treasury should evolve the Lifetime ISA to ensure it keeps working for everyone. Committing to an annual review of the house price cap and reducing the withdrawal penalty to 20% means savers will never lose any of their hard-earned money – giving future homeowners the certainty and support they urgently need.”
