Full benefits of the Lifetime ISA scheme are yet to be fully realised, analysis finds
A significant amount of potential government support for first-time home buyers went unclaimed last year, recent analysis by savings and investing app Moneybox has revealed.
Moneybox pointed out that through the Lifetime ISA (LISA), which offers a 25% bonus on savings up to £4,000 annually, savers could gain an extra £1,000 each year from the government. Despite this, out of the 300,000 first-time buyers in 2022 to 2023, only 56,100 utilised a LISA for their purchase.
This discrepancy suggests that up to 243,900 first-time buyers may have missed out on the government bonus, equating to a potential loss of £243.9 million in ‘free money’.
The Lifetime ISA has been a crucial tool for savers, with Generation Rent noting that saving for a first home deposit currently takes an average of 10 years. The LISA can significantly reduce this time, offering up to £10,000 in government bonuses on £40,000 saved over the same period.
Despite over 18 million Britons being eligible for a LISA, and more than 170,000 first homes purchased since its introduction in 2017, Moneybox indicates that the full benefits of the scheme are yet to be fully realised.
Moneybox itself has assisted over 70,000 individuals in purchasing their first home sooner than anticipated, with a notable 43% increase in young savers opening a Lifetime ISA last year.
The scheme, however, comes with restrictions, including a 25% withdrawal fee for funds used outside of first home purchases or retirement, and a £450,000 price cap on properties eligible under the scheme.
Brian Byrnes (pictured), head of personal finance at Moneybox, stated that while the government penalty has helped encourage people to commit to their savings goals, greater flexibility is needed.
“Introducing a penalty-free annual ‘Emergency Withdrawal Allowance’ so savers are not penalised if they need their money in an emergency, could provide greater reassurance to those in need,” he said.
“Additionally, while the property price cap has affected less than 1% of Moneybox Lifetime ISA customers to date, if it had risen in line with house prices, it would stand at £600,000. Therefore, we are calling for the price cap to be index-linked in line with house price inflation.
“Last November’s Autumn Statement didn’t bring the progress that we had hoped for, but the Spring Budget represents a huge opportunity for the government to make relatively small and inexpensive changes to the Lifetime ISA ensuring the product remains just as invaluable for the next generation of aspiring first-time buyers.”
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