Money-saving maven Martin Lewis has starkly advised current and prospective homeowners, warning them of potential steep fines. During his chat on BBC Radio 5 Live, he shone a light on the overlooked shortcomings of ISAs and LISAs, flagging that these financial tools lag due to being rooted in bygone conditions.
The Lifetime ISA, known as LISA, was designed to aid individuals aged between 18 and 39 in their quest to become property owners, offering an enticing 25% boost on their savings. However, since its initiation five years back in 2017, the property market’s landscape has altered drastically, leaving the LISA’s original intent somewhat obsolete.
Speaking candidly, Martin set out the specifics: “You can take the money out only for one of two reasons: number one, you are buying a first time property, you’ve never bought a property before, you’ve never owned a property before and that property has to be worth under £450,000. The second reason is you’ve hit age 60 and then you can take the money out and you get to keep the bonus.”
He didn’t stop there, underlining the punitive charges for dipping into funds for any use other than those prescribed: “No one who has opened the ISA has hit age 60 yet because they haven’t been around long enough. It’s a savings account. It’s just a tax-free savings account, but the real key to it is the 25% state bonus. The problem with a lifetime ISA…the big one is if you take your money out for any other reason than to buy a first time qualifying property or at retirement effectively when you’re age 60, you take a 25% penalty.”
Martin broke down the numbers to show that saving £10,000 could typically earn a £2,500 bonus, bringing the total to £12,500. But withdrawing the funds for reasons not permitted incurs a 25% penalty, thus reducing the amount to £9,375 and resulting in a £625 loss from the original savings, as reported by the Manchester Evening News.
Campaigners are calling for reform of the Government’s scheme aimed at first-time buyers, which effectively “fines” individuals if they use it to purchase a property exceeding £450,000. This issue was highlighted before by Mr Lewis.
One individual highlighted concerns particular to London’s property market: “I live in London and only apartments are affordable at the £450K cap. A decent apartment (e.g. energy-efficient, quiet neighbourhood) hovers around £450K. My concern is that when interest rates decrease (and prices increase), buying an apartment in London will be infeasible.”
Another comment read: “House price in my area was capped at 250k, relatively useless. Seems like it’s London and Everywhere else just like most things… Doesn’t meet it’s intended purpose.” Meanwhile, someone else mentioned age being a factor: “Probably would have done had I not been as old as I am -59. But it does need some fixing re the cap.”
Martin Lewis, the brains behind MoneySavingExpert.com, is leading calls for a pressing overhaul of the regulations concerning lifetime ISAs. These accounts allow individuals to save for their first home or retirement. He has previously labeled the current system “broken”, criticising it for unjustly penalising young savers and resulting in them reclaiming less than they initially put in.