The Help to Buy ISA and Lifetime ISA are two Government savings schemes helping first-time buyers get on the property ladder.

However, since their introduction in 2015 and 2017 respectively, the schemes have not been reviewed despite big changes in the market and the 35% increase in house prices over the last five years. 

The Building Societies Association (BSA) is calling on the Chancellor to review these schemes in next month’s Spring Budget, and more specifically, increase and equalise the ISA property price thresholds. It also wants these thresholds to be reviewed annually, and for the Lifetime ISA withdrawal penalty to be cut.

It added that the property price thresholds and withdrawal penalty were “contradictory to the scheme’s original intentions” and “prevents some first-time buyers from buying a home within the price limits”.

The Help to Buy ISA and Lifetime ISA

Both ISAs offer a 25% bonus on top of a first-time buyer’s savings when the money is used to purchase a home. However, this only applies to properties within the price thresholds set by the schemes. 

For the Help to Buy ISA, the limit is £250,000 outside of London and £450,000 in the capital. The LISA has a national £450,000 threshold.

The LISA is a hybrid property and retirement saving scheme and withdrawals in the first 12 months of opening it or for any reason other than buying your first home or retirement from the age of 60 are subject to a 25% penalty on the whole amount.

There is also a penalty payment of 25% of a first-time buyer’s savings if the property price exceeds the threshold. 

The BSA said someone who saved £4,000 a year for five years in a Lifetime ISA would lose their £5,000 bonus and pay a penalty of £1,250 from their own savings if the property they wanted was above the £450,000 threshold. 

Keeping up with changes 

The BSA said the thresholds should be increased, as since the scheme launched the gap between average house prices and the limit set had widened. 

It also asked for the threshold across the two scheme to be equalised as it proposed they be raised to £550,000 to reflect the growth in house prices. 

The association also called for the Lifetime ISA penalty withdrawal fee to be reduced from 25% to 20% so savers could keep all of their savings and only lose the Government bonus. 

The BSA said some savers accessed their accounts to help with the rising cost of living and should not be penalised for it. A reduction of the penalty was applied during the height of the Covid-19 pandemic and the BSA said this should be reintroduced on a permanent basis. 

Andrew Gall, head of savings and economics at the BSA, said: “If they are to continue to help first-time buyers, they must keep pace with changes in the housing market. 

“Regularly reviewing the threshold in line with house price inflation is the first crucial change needed. Whilst the current £450,000 Lifetime ISA threshold will be sufficient for many parts of the country, in other areas homebuyers may struggle to find a suitable property at this price point. 

“We also want the Government to make Lifetime ISAs fairer by reducing the withdrawal penalty, so that only the bonus is forfeited for those who access their saving, whether that’s to buy their first home at a price above the threshold, or those who simply need access to their savings – particularly under the current cost-of-living challenges.

“Savers who open an account in good faith, should not be financially penalised if, for whatever reason, they cannot meet the specific requirements of the scheme.” 

Related: ‘We’ll lose £4k Help to Buy ISA bonus due to wild-west property market’