It has become increasingly difficult to get that first foot on the property ladder, with spiralling costs of living and increased affordability challenges. The Lifetime ISA has been a lifeline, but it needs to be future-proofed.
Moneybox supports more than half a million aspiring first-time buyers (FTBs) on their journey to homeownership, so we were naturally disappointed when the Autumn Statement came and went with little to no help for our next generation of home buyers.
Every day we see just how committed aspiring FTBs are, doing all they can to make progress towards their deposit-saving goals.
However, their confidence has taken a notable hit in the last year. Just 35% of aspiring homebuyers are currently feeling optimistic about becoming a homeowner – down from 42% a year ago. And nearly six in 10 (58%) have already pushed back their plans to buy.
As we look ahead to the Spring Budget, we passionately believe that what is needed now are pragmatic measures that can be delivered in the near term, offering tangible benefits to empower aspiring FTBs navigate the current economic landscape with greater confidence.
These measures should facilitate continued progress towards homeownership goals, recognising that supporting young home ownership can catalyse economic growth, bolster the overall economy, and cultivate a heightened sense of financial security and stability. The ripple effects of such benefits extend beyond the individual, positively impacting broader society.
And while addressing supply-side challenges will be critical, efforts to do so will take some time to bear fruit. In the meantime, we know that saving for a deposit continues to be one of the biggest hurdles many face on the journey to buying a home and that is why the Lifetime ISA (LISA) has been such a lifeline to so many.
Building on the success of the Lifetime ISA
The LISA is an incentivised savings product launched in 2017 to help young people build long-term savings habits that would support them in buying their first home and planning for a comfortable retirement. From the age of 18, savers can pay in up to £4,000 each year until they are aged 50 and the government will add a 25% bonus to people’s savings – added monthly – up to a maximum of £1,000 a year.
To date, an entire generation of first-time homeowners has already benefited, with more than 170,000 homes bought, the length and breadth of the country far sooner than would have been possible.
Recent HMRC data shows that the number of LISA savers has increased by more than 20% year-on-year, and it is estimated that more than 800,000 people are currently saving into a Lifetime ISA.
However, with more than 18 million Brits eligible to open a LISA (aged 18 to 39), it’s clear that the true opportunity and benefits of this product are yet to be realised at scale.
Future-proofing homebuying for the next generation
Since the LISA was introduced in 2017, the population has endured a global pandemic, soaring inflation, interest rate hikes, and a cost-of-living crisis. However, LISA product rules have yet to be reviewed.
Under current rules, LISA savers must adhere to a property purchase price cap of £450,000 or they will be subject to a 25% government penalty fee on their savings. To date the property price cap has affected less than 1% of Moneybox LISA customers, however, we recognise that if the price cap had risen in line with house prices, it would stand at £600,000 today.
Therefore, we are calling for the LISA price cap to be index-linked, subject to annual review, in line with market conditions. This would provide some much-needed peace of mind to current and future LISA savers across the UK – particularly those living in the most expensive parts of the country.
As the LISA was designed to encourage long-term savings habits, the 25% government penalty also applies to any withdrawals made other than to purchase a first home or for retirement. Two in five (41%) Moneybox customers say this government penalty has helped them commit to their savings goal, however in the current economic climate, we believe greater flexibility is needed.
Therefore we are proposing that an ‘Annual Emergency Withdrawal Allowance’ of c.£1,000 for example, be introduced to help those who need to access their LISA savings in the event of an emergency.
By many measures, the LISA has already been a great success. It is a powerful instrument for empowering young savers; instilling lifelong positive savings habits while also providing invaluable financial support to help them achieve important financial life goals. A few simple measures will future-proof this unique savings product for generations to come, and bolster FTB confidence among all those who need it most.
Brian Byrnes is head of personal finance at Moneybox
