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Trade bodies call for LISA and HTB ISA reform to help first-time buyers

  • 07/02/2024
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Trade bodies call for LISA and HTB ISA reform to help first-time buyers
The Building Societies Association (BSA) and The Investing and Saving Alliance (TISA) are calling on the Chancellor to remove unfair penalties and change property price thresholds for lifetime ISAs (LISA) and Help to Buy (HTB) ISAs to better support first-time buyers.

The LISA and HTB ISA have helped hundreds of thousands of first-time buyers onto the property ladder by offering a 25 per cent boost to savings when they buy their first home.

However, the BSA and TISA said that crucial changes needed to be made to ensure the schemes are relevant to today’s first-time buyers


Lower the LISA withdrawal penalty

The trade bodies are urging the Chancellor to reduce the LISA withdrawal penalty. Currently if a LISA saver purchases a home above the property price limit, or needs to access the savings for another purpose, they may pay a penalty withdrawal fee of 25 per cent.

This means they forfeit the government bonus and a portion of their savings as well.

The BSA and TISA say lowering the withdrawal fee to 20 per cent would allow savers to keep all their own savings while still forfeiting the government bonus.

As an example, for someone who has saved £4,000 a year for five years in a LISA, the penalty for using their savings towards a house above the threshold would be all the government bonus of £5,000 and an extra £1,250 of their own savings.


Update and annually review LISA and HTB ISA property price thresholds

LISA and HTB ISA property price thresholds differ, which the trade bodies say is “confusing” and “unfair” to savers who are “subjected to much lower thresholds” than other schemes.

The property threshold for a LISA is £450,000 across the nation, whereas for HTB ISA it is £250,000 outside London and £450,000 inside London.

The BSA and TISA said that “it makes no sense” that a lower threshold is applied outside of London.

They added that despite a 30 per cent increase in house prices since LISAs were brought out the thresholds have remained unchanged, which is preventing some first-time buyers from buying a home within the price limits.

The trade bodies said that equalizing the thresholds in the two schemes and upping it to £550,00 across all regions, then a commitment to review them on an annual basis would ensure that both schemes “remain relevant” to first-time buyers.

Changes should be made in upcoming Budget

Robin Fieth (pictured), chief executive of the BSA, 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 reintroduce 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 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.”

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