Money-saving authority Martin Lewis has issued an urgent reminder to those looking to buy property over £450,000, warning about potential financial setbacks. Speaking on BBC Radio 5 Live, Lewis underscored the potential pitfalls of ISAs and Lifetime ISAs (LISAs), emphasizing that their outdated structure could lead to hefty penalties for homeowners and future homeowners alike.
The Lifetime ISA (LISA), launched in 2017, was designed to assist young adults aged 18 to 39 in entering the housing market by offering a 25% bonus on savings. However, significant changes in the housing landscape have made the scheme’s conditions less relevant today. As Martin Lewis pointed out, “You can only withdraw money for two main reasons: either to buy a first-time property worth under £450,000 or upon reaching age 60, allowing you to keep the bonus.”
The Financial Penalties of Early Withdrawal
He continued to explain the severe penalties for withdrawing funds for other purposes. “No one who has opened the ISA has yet reached age 60 because the account hasn’t been around long enough. The key feature of a LISA is its 25% state bonus. However, if you withdraw money for any reason other than buying a first-time qualifying property or during retirement, you face a 25% penalty,” he noted.
For context, Martin illustrated that saving £10,000 typically yields a £2,500 bonus, bringing the total to £12,500. However, withdrawing for unqualified reasons results in a penalty that reduces the total to £9,375—a loss of £625 from the initial savings. The Manchester Evening News reported this illustration to highlight the significant impact of these penalties.
Immediate Calls for Government Action
He pointed out that in the tax year of 2024 alone, a staggering £15 million in penalties was imposed on taxpayers. “I don’t have that much of an issue with penalties designed to ensure the LISA is used for its intended purposes,” Martin said. However, he stressed, “The property threshold limit, set at £450,000 since 2016, hasn’t changed. This limit leaves many first-time buyers, especially in high-cost areas like London, facing penalties despite using the LISA as advised.”
He noted that rising property prices in metropolitan areas make it almost impossible for residents to buy homes within the £450,000 cap. “Those who have saved as advised by the government now find that their desired property costs more than £450,000. As a result, they face significant penalties for withdrawing their money to buy their first home,” he explained. Martin’s analysis reveals that around £1.8 million per year is unjustly paid in penalties by those following the scheme’s intended purpose.
As campaigners push for changes to the outdated scheme, concerns continue to rise. One London resident remarked, “I live in London, and only apartments are affordable at the £450,000 cap. If interest rates decrease and prices increase, buying even an apartment will become infeasible.”
Another individual commented, “In my area, the house price cap is set at £250,000, making the scheme relatively useless. It doesn’t meet its intended purpose outside of London.” This sentiment echoes Martin’s call for an immediate revamp of LISA rules.
Martin Lewis, founder of MoneySavingExpert.com, advocates for urgent reforms to ensure the Lifetime ISA scheme better serves its audience. He has consistently argued that in its current form, the scheme is “broken” as it unfairly reduces some young people’s savings, giving them back less than their initial investment.
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